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Privatisation

• Privatisation means allowing the private sector to set up more and more of industries that were previously reserved for public sector. • Change in ownership: Degree of privatisation judged by the extent of ownership transferred from public to private sector.

Objectives of Privatisation • To increase efficiency & competitive power of the enterprises • To strengthen industrial management. • To make optimum use of resources • To achieve rapid industrial development of the country. • To earn more & more Foreign currency. .

Advantages of Privatisation • • • • • • Reduction in economic burden Increase in efficiency Reduction in sense of irresponsibility Scientific Management Reduction in Political Interference Encouragement of new Inventions .

Disadvantages of Privatisation • Lack of social welfare • Class struggle • Increase in inequality • Increase in unemployment • Exploitation of weaker section .

Disinvestment “The action of an organisation or government selling or liquidating an asset or subsidiary” .

Objectives of Disinvestment  To reduce the financial burden on government  To improve public finances  To introduce. competition and market discipline  To increase growth of the firm  To encourage wider share of ownership .

Reasons for Disinvestment • To meet fiscal deficit • Expansion or diversification of the firm • To repayment of government debts • Implementation of government plan • PSU's give negative rate of return on capital .

. In 1991.Background of Disinvestment The Indian economy had virtually embraced bankruptcy during the period of 1980-92. The return on public sector investment for the year 1990-91 was just over 2 percent. there was 236 operating public sector undertakings. The top 20 profit making PSU’s were responsible for 80 percent of profits. of which only 123 were profit making.

Criteria for Disinvestment The decision regarding disinvestment or liquidation viewed in the light of following criteria:  Whether the objectives of the company are achieved  Whether there is decrease in number of beneficiaries  Whether serving the national interest will be affected because of disinvestment  Whether private sector can efficiently operate and manage the undertaking.  Whether the original rate of return targeted could not be possible to achieve.  Whether socio-economic objectives lots its purpose .

in July 1991 initiated the disinvestment process in India..Process of Disinvestment   The govt. Contd. Both the committees have recommended disinvestments to fulfill objectives of modernization of the PSE’s through: (a) Strengthening R &D (b) Initiating diversification/expansion programme. The govt.  . had appointed the Krishnamurthy committee in 1991 and Rangarajan committee in 1992 to look after the disinvestment process. (d) Funding genuine needs of expansion. (c) Retaining and reemployment of employees. (e) Mitigating fiscal deficit of the government. while launching the New Economic Policy (NEP).

. has announced in its NEP that mitigating the fiscal deficits is the only objective of disinvestment. . not to sacrifice the long term goals for the sake of fulfilling the short term objectives.  The govt.  The crucial shift in govt. Contd. policy for disinvestment of PSU’s was mainly attributed to poor performance of these enterprises and burden of financing their requirements through budget allocation.Process of Disinvestment  These committees also distinguished between the short term and long term goals of the disinvestment and advised the govt.

Ramakrshna for drawing a long term disinvestment programme for the PSU’s. out of 70 enterprises referred to it by the govt.K. recommendations ranged from strategic sales in various proportions to disinvestments ant various level. .  This committee was ultimately abolished in 1999.Process of Disinvestment  Further in 1996.  The committee submitted its report covering 58 enterprises.. the govt. constituted a five member public sector disinvestment commission under the chairmanship of G. Contd.

ONGC.H.  In 2001. reconstituted the disinvestment commission with R. which will increasingly emphasize strategic sales of identified PSU’s.Process of Disinvestment  The govt. set up a new Department of Disinvestment in 1991 to establish a systematic policy approach to disinvestment and to give fresh impetus to the programme of disinvestment. excluding IOC.  The govt. . and GAIL to the commission for its independent advice. has decided to refer all ‘non-strategic’ PSU’s and their subsidiaries.Patil as its chairman. the govt.

 Disinvestment beyond 50% involves transfer of management.Privatization and Disinvestment  Privatization implies a change in ownership. sells more than 51% of its ownership to private entrepreneurs. . to retain control over the organization. resulting in a change in management. continuing to have a major say in the undertaking.  Disinvestment on the other hand. stake to a level that result in a transfer of management or could also be limited to such a level as would permit govt.  The privatization of public sector enterprises will occur only when govt. has a much wider connotation as it could either involve dilution of govt. where as disinvestment below 50% would result in the govt.