Disinvestment refers to the selling or liquidation of government assets or subsidiaries to achieve several objectives like reducing fiscal burden, improving public finances, and introducing competition. Reasons for disinvestment include meeting fiscal deficits and implementing government plans. The government established criteria for disinvestment and a process involving committees to review public sector undertakings and make recommendations. Privatization involves selling over 51% ownership and changing management, while disinvestment can range from diluting government stake to retaining control.

1. By A.Raja

2. DISINVESTMENT
“The action of an organization 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

3. 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

4. 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

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

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

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

8. Cont…
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, which will increasingly emphasize strategic
sales of identified PSU’s.
•In 2001, the govt. reconstituted the disinvestment
commission with R.H.Patil as its chairman.
•The govt. has decided to refer all ‘non-strategic’ PSU’s and
their subsidiaries, excluding IOC, ONGC, and GAIL to the
commission for its independent advice.

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

10. THANK YOU