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1. 49% of equity could be divested for industries explicitly reserved for the
public sector
2. In exceptional cases the public ownership level could be kept at 26%.
3. In all other cases it recommended 100 per cent divestment of Government
stake.
4. Holding 51% or more equity by the Government was recommended only for
six Schedule industries, namely:
I. Coal and lignite
II. Mineral oils
III. Arms, ammunition and defense equipment
IV. Atomic energy
V. Radioactive minerals
VI. Railway transport
Evidently the framework was not acceptable then for obtaining, for in 1996, the
then United Front Government came into power and the situation changed.
15
1. The year of 2004 marked the change in governance from the BJP
government to the Congress led coalition & hence a transition in the
objectives & processes of disinvestment.
2. In conformity with the policy enunciated in NCMP, it was decided in February
2005 to formally call off the process of disinvestment through Strategic Sale
of profit making Central Public Sector Undertakings (CPSUs). Examples
Manganese Ore Limited, Shipping Corporation of India, National Aluminium
Corporation.
3. The National Common Minimum Program of May 2004 stated that
Navaratna PSUs were to be retained in the public sector.
4. Every effort was to be made to modernize and restructure sick PSUs and
revive sick industry.
5. Chronically loss-making undertakings were to be either sold-off, or closed
after all the workers had got their legitimate dues and compensation.
6. The National Investment Fund was established by the UPA government.
7. Government also decided to disinvest/ list some profitable CPSU’s on the
stock market, to invest the money in other projects.
` Navratnas are the nine Public Sector Enterprises or PSE, identified by the
Government of India in 1997 as its crown jewels or the most prestigious Public
Sector Undertaking (PSU)s, which allowed them greater automony to compete in the
global market.
` Bharat Heavy Electricals Limited (BHEL)
` National Thermal Power Corporation (NTPC)
` Oil and Natural Gas Corporation Limited (ONGC)
` Gas Authority of India Limited (GAIL)
` Indian Oil Corporation (IOC)
` Bharat Petroleum (BPCL)
` Mahanagar Telephone Nigam Ltd. (MTNL)
` Hindustan Petroleum (HPCL)
` Steel Authority of India Limited (SAIL)
` New one is National Mineral Development Corporation Limited
` The proceeds from disinvestment of CPSUs will be channelized into
NIF.5% of the annual income of NIF will be used to finance selected
social sector schemes, which promote education, health and
employment. The residual 25% of the annual income of the Fund
will be used to meet the capital investment requirements of
profitable and revivable CPSUs that yield adequate returns, in order
to enlarge their capital base to finance expansion/diversification.
` An investment strategy was formulated to provide sustainable
returns without depleting the corpus.
Summary of disinvestments in the Second Phase
` The equity in PSUs essentially belongs to the
people. Thus, in the absence of wider national
consensus, a mere government decision to
disinvest is not totally justifiable.
` It is not clear if the rationale for divestment
process is well-founded. The assumption of
higher efficiency, better management practices
and better monitoring by the private
shareholders may not always be true.
` Mainly to fill fiscal deficits of the government.
“Like covering one sin with another sin”
“Living lavishly by selling your mothers jewelries”
` Generated capital has not been utilized for the benefit of
the disinvested PSU. ( only a part, that too <25% in most
cases).
` Governments have used disinvestment merely as a tool to
raise resources to satisfy interim needs rather than with a
long vision to restructure Indian industry.
` Even though NIF was created by the present UPA Govt,
till date the money raised through only one disinvestment
process has been transferred to its account. E.g.: sale of
Government equity in PGCIL
` Inadequate information about PSUs has resulted in lack
of free, competitive and efficient bidding of shares, and a
free trading of those shares.
` PSUs do not benefit much monetarily from
disinvestment and hence they have been reluctant to
prepare and distribute prospectuses.
` This has prevented the disinvestment process from
being completely open and transparent.
` Under-valued shares.
` E.g.: Centaur Airport Hotel in Mumbai was sold to A L
Batra for Rs 830 million against the reserve price of Rs
780 million but A L Batra later sold it to Tulip Star at a
much higher price.
` Only 3 times has the proposed target has
been achieved.
` Some of the years the Govt. has failed to raise
even 20% of the budgetary disinvestment
targets.
` The Government has measurably failed to
attract various parties for buying the PSU's.
` In the sale of government equity in PSUs to the
Indian private sector, there is no decline in
national wealth
` But the sale of such equity to foreign companies
has far more serious implications relating to
national wealth, control and power, particularly if
the equity is sold below the actual price.
` Increase the dependence of Indian economy on
the international fluctuations.
` Monopolies created by privatization(?).
E.g.: Selling of IPCL to reliance despite the fact
that it held 60% of market share already.
` Possibility of concentration of shares in few hands:
E.g.: ONGC disinvestment, Claim by left party
activist that large number of shares were being
bought over by Canadian firm.
` Increased wages.
` Increased efficiency.
` The employees are still protected by labor laws and
hence have job security.
` Significant increase in workload and stress.
` Implementation of VRS’s and trace cases of CRS. E.g.
Banks.
` So it is clearly seen that the fears regarding Job cuts are
miscounted for and has been tackled effectively through
options like governmental controls, labour laws and
VRS.
` Disinvestment has always been a very politically
sensitive issue, with different parties taking different
views in different positions.
` Strategy towards disinvestment has also been subject to
Governments and their allies. There has never been a
clear stance on disinvestment by any government.
` The abolishment of the ministry of disinvestment in
2004, after the formation of Congress coalition was
mainly to appease Left parties.
` Another Example of this is the scrapping of
recommendations of the Rangarajan Committee and
setting up of a new committee by the new United Front
Government when it came to power.
-A case study
` In February 2001, the Government of India (GoI)
approved the sale of its 51% stake in aluminium
major, Bharat Aluminium Co Ltd (Balco) to Sterlite
Industries Ltd. (SIL), for Rs. 551.5 crores
` Balco was a profit making public sector company.
` It had a turnover of Rs.898 crores and a profit
after tax of Rs. 56 crores
` The deal witnessed fierce opposition from the
opposition Govt. as well as the state Govt. of
Chattisgarh.
` The employees launched an indefinite strike protesting
against the BALCO sell out, which lasted for 62 days.
` The then Chattisgarh Chief Minister Ajit Jogi accused the
GoI of indulging in 'underhand dealings’ to the tune of Rs
100 Crores.
` Jogi claimed that the sale of Balco equities would have
fetched at least Rs 5,000 crore.
` Then opposition party congress claimed that the deal
would have easily fetched the GoI more that 1200
Crores.
` BALCO with a cash deposit of Rs 450 Crores and
annual profit of Rs 100-150 Crores were being sold for a
paltry Rs 551 Crores.
` To add to this, the bidding process was anything but
transparent. Still the GOI is accused of not disclosing the
final bid offers, even after the finalization of the bid.
` Disinvestment in India has never been an attractive idea simply
because successive governments have treated disinvestment
merely as a tool to raise resources rather than as one designed to
restructure the massive public sector.
` The fact that only in 3 of the 13 years budgetary targets were met
show the ineffective implementation of this process by the
government. Red Tapism and administrative loopholes have led to
many controversies regarding disinvestment leading to many legal
hassles and creating a negative image regarding DISINVESTMENT
` There’s never been a clear direction to disinvestment as it has been
subjected to the vagaries of politics of power.
` Its time a proper consensus is arrived through discussions on
disinvestment aimed at restructuring Indian industry to make true
the lofty visions of Jawaharlal Nehru and to continue growing at the
same rate.