Economics for managers

A Presentation on

DISINVESTMENT IN PUBLIC
SECTOR UNITS
By,
Deekshita
Priyanka.R.M.
Radhika.V.
Rohit Rajkumar
Rajeev.B.L.
 Disinvestment
Disinvestment typically refers to sale from the
government, partly or fully, of a government owned
enterprise.
Disinvestment also refers to sale of shares of
public sector undertakings by the government.
 Different approaches of disinvestment

 Minority disinvestment : The government retains a

majority stake in the company, typically greater than
51% thus ensuring management control.
 Majority disinvestment : The government post
disinvestment retains a minority stake in the company
i.e. it sells off a majority stake
 Complete privatisation : complete privatisation is a form
of majority disinvestment where in 100% control of the
company is passed on to a buyer.
 Background of disinvestment

 The Indian economy had virtually embraced bankruptcy

during the period of 1980-1992
 In 1991,there was 236 operating public sector
undertakings, of which only 123 were profit making.
 The top 20 profit making PSU’s were responsible for 80
percentage of profits.
 The return on public sector investment for the year
1990-1991 was just over 2 percent.
 Objectives of Disinvestment

 To reduce the financial burden on government

 To improve public finance
 To introduce, competition and market discipline
 To encourage wider share of ownership
 To increase the growth of the firm
 To create employment opportunities
 Improving performance
 Methods of Disinvestment

 Government has adopted following methods to sell off

shares in Private Sector Units.
 Bidding.
 Sale of shares in the Market.
 Global Depository Receipts (GDR) route.
 Cross-holdings.
 Strategic Sales.
Disinvestment in India
 Advantages of disinvestment

 To achieve greater inflow of private capital. This

revenue can be used to compensate the deficit finance.
 Allow new firms to enter into the market and thus
increases competition.
 Brings the low productivity PSUs back on track there by
improving the quality of goods eliminating excessive
manpower utilization and enabling high profit.
 Transfer of commercial risk to private sectors
 Disadvantages of disinvestment

 Loss of public interest

 Fear of foreign control
 Issues with workers
 Less number of bidders
 Conclusion
 The study of disinvestment for a such a long period has a revealed
that a very meager amount of disinvestment proceeds has been
realized as against the target.
 There is no clear-cut framework or policy for disinvestment in India.
 The government has done a little or more so failed to attract foreign
suitors for the disinvestment process in India.
 The disinvestment process needs to be taken up more seriously by
the government with a time bound for the program to conduct the
process with transparency.