Chapter 14

PRIVATISATION:
Problems and Prospects

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 PRIVATISATION
Privatisation means a change in ownership resulting in a change in management.
Disinvestment means dilution of the stake of the government to a level where
there is no change in control that results in the transfer of management.

No. of Industries reserved for Public sector in India 17(1956)

No. of Industries reserved for Public sector in India 8(1991)
No. of Industries reserved for Public sector in India 6(1993)
No. of Industries reserved for Public sector in India 3(Now)

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 Learning Objectives
 To understand the meaning of the term ‘privatisation’ and its
methods
 To learn the rationale for privatisation and the problems
 To analyse the disinvestments scenario in India
 To compare the privatisation programmes in the UK with that
of India
 To analyse the case of privatisation of VSNL

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 GLOBAL ECONOMY AND PRIVATISATION

 Chile – Mid 1970s

 U.K - Privatisation by Margaret Thatcher in 1980s (modified

the phrase as `Popular Capitalism’)
British Telecom, British Air, British Power, British Petroleum and
British Rail were some of the were some of the major PSUs
disinvested

 France – Privatisation of 66 PSUs during 1986 to 88 (42 in

banking, 13 in Insurance, 9 in Industry Sectors, 2 Telecom)

 Germany – Sale of government stake of PSUs like Volkswagen

(Auto), Lufthansa etc.

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 DISINVESTMENT - METHODS

1. Strategic Sale

2. Initial public offer through Capital Market (Domestic)

3. Issue of GDR / ADR

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DISINVESTMENT (INDIA) PERFORMANCE (Rs.
Billion)

Year Target Collection

2000-01 100 18.70

01-02 120 56.03

02-03 120 33.48

03-04 132 155

04-05 40 27

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 DISINVESTMENT (Strategic Sale)

 Proposal for disinvestment placed for consideration of

Cabinet Committee on Disinvestment (CCD). Then Expression
of Interest Call for. Shortlisting of bidders, Due Diligence of
PSU by bidders. Bid received are again placed before CCD for
final decision.
 Ex: (1) Sale of 51% stake in BALCO to Sterlite Industries
 (2) 74% stake in Lagan Jute Machinery to Murlidhar Ratanlal
Exports Ltd in 2000.

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 DISINVESTMENT:
STRATEGIC SALE METHOD

• 51% stake in CMC limited to Tata Sons for Rs.152

crores (Oct 2001)

• 25% equity out of Govt’s 53% stake in VSNL to M/S

Panatone (Tata Group) Feb 2002

• 26% equity in IPCL (out of 60% Govt. stake) to Reliance

Group (May 2002)

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 OTHER METHODS OF DISINVESTMENT

1. Global Depository Receipt Issue (ex: VSNL during

1996-97 and 97-98)

2. Domestic Offering of shares (ex: GAIL in 1998-99)

through Capital Market. (IPO)

Other IPOs are ONGC (10%), Maruti (27.5%)

in 2003-04.

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 CASE DISCUSSION

 Privatisation of VSNL

 Privatisation of Airports and Airline Industry

 Air Deccan

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