Is Disinvestment a Solution to Economic problem in India

Meaning of Investment
Equities Bonds Debentures

Any Other Form

What is governments investment?

Government owns stake in PSUs
Publics Property Under Presidents name

Meaning of Disinvestment
Disinvestment involves the conversion of money claims ,securities into money or cash by the government The withdrawal of capital from a company or corporation Disinvestment is called partial privatization

Approaches to disinvestments
There are two approaches to disinvestments viz The government sells its equity holdings in PSUs to public or private parties or MFIs or other Financial Institutions. when PSUs are generally directed by the government to issue their equity share to public, private parties, financial institution and mutual fund with a view to reduce its control.

Objectives of Disinvestment
To generate revenue for the government To provide for social welfare To reduce budget deficit

To introduce the big reform - FRM

Disinvestment Process
1 2

Core Group of Secretaries

Disinvestment Commission
3

Ministry of Finance
Inputs from adm. Ministry and Department of Disinvestment

4 5

Sends Recommendations
6

Cabinet Committee of Disinvestment (CCD)

Core Group of Secretaries on Disinvestment (CGD)

Does Monitoring 7

Inter-Ministerial Group (IMG)

Constituted for Implementation

Current Policies
Revitalize the disinvestment program and plan to generate at least Rs. 25,000 crore per year Complete the process of selling of 5-10% equity The Government has announced a disinvestment target of Rs. 40,000 crore for the fiscal 2010-11

The Government had also announced its intentions of raising the minimum public shareholding in listed companies to 25% revised by 10%

Issues in Disinvestment
Reviving privatization policy Economic resurgence Capital raising activity on rise Expanding equity base Employees Issues

Economic Resurgence
The Centre has the major responsibility of improving the budgetary health on a tight leash its internal indebtedness

The opportunities afforded by the excellent valuations, based on the performance of many profit-making PSUs, must be leveraged

Employees Issues
Of the 1.6 million jobs added in the organized sector 1 million, or two thirds, were added in the private sector during the period 1991 to 2000
This indicates that the private sector has become the major source for incremental employment in the organized sector of the economy over the last decade

Case Study : BALCO Bharat Aluminium Company Limited

Company profile
Set up in 1965 at Korba ,Chhattisgarh
Manufacture aluminium rods and semi-fabricated products Fabrication unit in Bidhanbagh

270 MW power plant

Refining capacity of BALCO is 2, 00,000 tonnes

THE DISINVESTMENT DECISION

Government of India had 100% stake before 1997 Disinvestment Commission recommended immediate divestment of 40% 26% within 2 years and the remaining stake at an appropriate time thereafter. Later, in 1998 the Disinvestment Commission revised its recommendation

.conti
Government to consider 51% divestment
Transfer of Management BALCO's equity being reduced by 50% Government received Rs. 244 crore from the capital restructuring

 Strategic sale process for BALCO started in late 1997 and finally came to end in 2nd March 2001 51% stake was sold to Sterlite Industries @ Rs. 551 crore. Government thus recovered Rs 827 crore from this privatization.

POST SALE SCENARIO

Number of doubts have been raised
Transparency Valuation Protection of employees interests

SHOULD INDIA GO FOR COMPLETE PRIVATISATION?

Oil & gas sector Education

Defense
Banking sector Steel, Mobile & IT

SHOULD INDIA GO FOR COMPLETE PRIVATISATION?

NO

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