PUBLIC SECTOR ENTERPRISES
Public sector undertakings were established in India as a
part of mixed economy. After independence public
sector undertakings played a vital role in the economic
development of the country.
Generation of employment, balanced regional
development and economic development of the country
were the objectives of PSE's at the time of their
During mid 1991 onwards the economic scenario of the
country has changed with the onset of liberalization and
Disinvestment of PSU means the sale of public sector
equity leading to a dilution of the government’s stake. In
India the term disinvestment is used rather than
A well designed disinvestment program helps in the long
term growth process through increased foreign
investment, technology transfer and the subsequent
enhancements in the productivity.
Disinvestment was flagged off in 1991 without any clear
cut objectives. The stated objective was to raise resources
to finance fiscal deficit.
In 2001, the government introduced a special provision
for setting aside a quota for shares for small investors
The government of India set up a committee under the
chairmanship of the former RBI
governor, C.Rangrajan, in 1993.
Rangarajan Committee produced report in April 1993
and recommended the percentage of equity shares for
disinvestment should be below 49 per cent in the
industry reserved for public sector and more than 74
per cent in others industries.
The number has increased from 163 in 80-81 to 236
in 90-91 and then remained stagnant over the years.
This indicates that the government promoted P.S.E's till
1990-91 and the process came to a halt when the
Methods of Disinvestment
Government has adopted following methods to sell off
shares in PSUs
Sale of shares in the Market
Global Depository Receipts (GDR) route
Result of Disinvestment
It is required to disinvest not only the lose making PSUs
but also the profit making PSUs with proper valuation.
The proceeds from disinvestment of PSUs will be
channelized into the National Investment Fund which
will be maintained apart from the consolidated fund of
75% of the annual income of the fund will go to finance
selected social schemes, which will promote education
system, health care and employment
Rest 25% of the annual income of the fund will go to
meet the capital investment requirement of profitable
and revivable PSUs that produce good returns, in order
to increase their capital base to finance expansion or
The role of government has changed from a producer to
Privatization of PSE's will create a certain degree of
monopoly in the market and it is important that the
Government should play the role of a tough regulators
to Protect the Consumers from market exploitation.
The amount realized from disinvestments will be used
for meeting expenditure in social sector, restructuring
the PSE's and for retiring public debt.
Trade union and valuation of PSU's disinvestments. Fair
valuation and transparency is disinvestments process
are equally important to make this exercise free from
criticism and better public acceptance.
Disinvestment process through liberalization and
privatization leads to cost reduction, quality of service
and operational efficiency.
India is already confronting the challenges of fiscal deficit due
to the huge symphonizing of capital for the social sector. The
current account deficit is also the cause of concern for the
Indian government. The expenditure on different front namely
defense (16% of GDP) is larger in extent and worthwhile also.
But the growing fiscal deficit and current account deficit will
not be bearable for longer span of time. There is immediate
need to tame this gap. The only way out is disinvestment of
Public Sector Undertakings.
It results in efficient use of resources whereby scarce resources
like land, capital and machinery are put to more efficient use.
The economy as a whole is benefited by increase efficiency of
the units and the fiscal mess is reduced by lessening of
It is observed that interest on borrowed funds comes to
larger amount than dividend received through PSE's
annually. Thus it indicates that even profit making PSE's
are worth for disinvestments provided it is valued
properly and full transparency is maintained
Inefficient PSU’s were largely responsible for the macro-
economic crisis faced by India during 1980’s although
they were set up for the purpose of providing
employment and the same time generate revenue
surplus. But they could not stand to expectations. Hence
steps for disinvestment had to be taken.