To reduce financial burden of govt.Promote people’s ownership of Central Public Sector Enterprises.List all profitable CPSEs on stock exchanges Listing to result in: Improvement in corporate governance.Transparency and accountability. Market discipline.Unlocking true value of CPSEs to all stakeholders.
IPO first sale of equity of a company to the public by listing on stock exchange.
NIF is outside the ConsolidatedFund of India.For the last 3 years all the money is used for social development.
India lags behind all the BRIC nations.China being a communist is leading.Comes from disinvestment of major infrastructure PetroChina and financial banks ABC fetched the highest IPO in the world.
Low equity participationAuction gives maximum realisation of assets and also transaction cost and least time.Long term gains increased participation in markets.
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 involves dilution of govt. stake to a level that results 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. 2
Strategic sectors are excluded from the purview of disinvestment Nuclear Defence Railways.
Strategic Sale: govt. sells a major portion of its stake to the strategic buyer and also gives over the management control Capital Market: offering shares at a fixed price through a general prospectus, the offer is made to the general public through the medium of recognized market intermediaries. Auction Sale to Employees: VSNL part of equity sold to employees.
Part of economic reforms of 1991 Focus on disinvestment Auction method was widely followed
NDA govt. at the centre. Maximum no of disinvestments. Focus shifted to strategic disinvestment Major Disinvestments 1. BALCO taken over by Vedanta Group 2. HZL 3. ITDC (18 HOTEL PROPERTIES) 4. MARUTI SUZUKI INDIA LTD. 5. MODERN FOOD INDUSTRIES (INDIA) LTD. 6. VSNL taken by Tata Group Between 2001-1004 against an aggregate target of Rs. 38,500 crore to be raised from PSU disinvestment, the Government managed to raise Rs.21,163.68 crore.
UPA govt. Disinvestment through public offer encouraged. Uncertain market conditions in the last 3 years. Present policy : govt. to retain atleast 51 equity and managerial control To sell upto 5-10% equity in profit making CPSE’s CIL ONGC OIL NTPC Disinvestments proposed this fiscal: NMDC NALCO HCL RINL OIL Will generate about Rs.12000 crore.
National Investment Fund Set up in 2005. Realization from sale of minority shareholding of the Government in profitable CPSEs would be channelised. 25% to meet the capital investment requirements of profitable and revivable CPSEs, in order to finance expansion. 75% of the annual income of the Fund will be used to finance selected social sector schemes, which promote education, health and employment. 1. MGNREGA 2. IAY 3. Rajiv Gandhi Gramin Vidyutikaran Yojana
Country Proceeds ($ millions)China 1,70,736Russia 52493Brazil 18362India 9611Pakistan 7556
Only 0.7% of public households invest in equities. Disinvestment of profit making CPSE’s1. BALCO Rs. 5.69cr TO Rs. 82.65cr2. MUL Rs. 13cr TO Rs. 242cr Public offer vs. auction
In Private Sector, the decision making process is quick Decisions are linked with the competitive market changes. better corporate governance, exposure to competitive, corporate responsibility. Transparency. The market participation in capital of PSUs through stock exchanges would enable the market to discover the latent worth of PSUs. The Loss making PSUs can be successfully revived by asking the strategic partner to infuse fresh capital and exercising excellent management control over sick PSUs 14
Loss of regular source of income to the government. There would be chances of ‘asset stripping’ by the strategic partner. Most of the PSUs have valuable assets in the shape of plant and machinery, land and buildings etc. The Government’s Policy on disinvestment includes the disposal of both profit making, as well as potentially viable PSUs. Loss of public interest. Protests by employees- VRS. Private monopolies: VSNL to Tata IPCL to Reliance. 15