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Disinvestment Objectives: 9
Objectives of Disinvestment in
India
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Some of the objectivities of Disinvestment in India are

follows:
The Government in July 1991 initiated the disinvestment process in
India, while launching the New Economic Policy (NEP). The
Government had appointed the Krishnamurthy Committee in 1991
and Rangarajan Committee in 1992.
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Both the Committees, have recommended disinvestments to fulfill

objectives of modernisation of the public sector through strengthening
R & D, initiating diversification/ expansion programmes, retraining
and re-employment of employees, funding genuine needs of
expansion, widening the capital market basis and mitigating fiscal
deficit of the government.

These committees distinguished between the short-term and long-

term goals of disinvestment and advised the government not to
sacrifice the long-term goals for the sake of fulfilling the short-term
objectives. The Government has announced in its NEP that mitigating
the fiscal deficits is the only objective of disinvestment.

The crucial shift in the Government policy for disinvestment of PSU’s

was mainly attributable to poor performance of these enterprises and
burden of financing their requirements through budget allocations.

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Further the Government constituted a five member public sector

Disinvestment Commission under the chairmanship of G.K.
Ramakrishna in 1996 for drawing a long-term disinvestment
programme for the PSUs.

The Disinvestment Commission submitted its report covering 58

enterprises, out of 70 enterprises referred to it by the Government
Recommendations ranged from strategic sales in various proportions
to disinvestments at varying levels. The Commission’s
recommendations are in various stages of implementation. The
Disinvestment Commission was ultimately abolished in November
1999.

In 2001, the Government reconstituted the Disinvestment

Commission with R.H. Patil as its chairman. The government has
decided to refer all ‘non-strategic’ PSUs and their subsidiaries,
excluding IOC, ONGC and GAIL to the Commission for its
independent advice.

The government set up a new Department of Disinvestment in 1999 to

establish a systematic policy approach to disinvestment and to give a
fresh impetus to the program of disinvestment, which will increasingly
emphasize strategic sales of identified PSU’s.

The Objectives of Disinvestment:

The following are the main objectives of the disinvestment policy of
the Government.

(i) To reduce the financial burden on the Government.

(ii) To improve public finances.

(iii) To encourage wider share of ownership.

(iv) To introduce, competition and market discipline.

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(v) To depoliticise essential services.

(vi) To help public enterprises upgrade their technology to become

competitive.

(vii) To rationalise and retrain their workforce.

(viii) To build competence and strengthen their R & D.

(ix) To initiate diversification and expansion programmes.

Thus, the disinvestment is aimed to reduce or mitigate fiscal deficit,

bring about a measure of economic stabilisation or to improve
efficiency in public enterprises through structural adjustments
initiated to improve their efficiency and productivity.

The new Industrial Policy provides that, “In order to raise resources
and encourage wide public participation, a part of the government
share holding in the public sector would be offered to mutual funds,
financial institutions, general public and employees”. This is a process
for disinvestment in the public enterprises.