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Indian Public sector disinvestment

© Sebastian Dominic

The Government of India is selling its holdings in the companies promoted by it. These companies, known as public sector companies, were promoted by the government for economic development and social justice. Theoretically, the intentions of setting up these companies were good. In practice most of these companies became a drag on the exchequer.

Even though these companies enjoyed monopolies in their respective fields, the financial position of the majority of these companies are far from satisfactory. Inefficiency and corruption are common and they owe their existence to the directionless economic policies followed by the congress governments.

The late eighties saw a changes in economic polices and this was immediately reflected in government policy regarding the public sector units. The policy makers felt that there was no point in supporting public sector units that are counterproductive to the economic growth of the country.

It was also felt that government funds in these companies by way of share capital can be better utilized if taken out. This formed the basis of the public sector disinvestment programs. It is also true that the present government is going blindly on the disinvestment program just to bridge the budgetary gap.The annual budget presented by the finance minister includes income from disinvestment. The actual funds generated from disinvestment invariably falls behind the governemnt targets.

There are many who want to take maximum benefit of the disinvestment process Take the case of SEBI (Securities and Exchange Board of India. It advises the government on the need for PSU disinvestment in the local market as compared to overseas markets. This would boost the primary market and also stop the ownership of these blue chips from being transferred abroad. The regulator does not favour selling PSU stocks through the GDR route at the expense of the domestic market. "There is no problem of demand in the domestic market for the top ten PSUs," sources in Sebi said.

It is the government's view that a portion of divestment should be earmarked for the small investor. Some even believe in a capital market revival on the basis of the return of the small investor. The thinking within government is that since only institutional investors partake in the private placement market, it would be a good means of ascertaining the "right price."

The present government is presenting a very optimistic picture. The disinvestment target was pegged at Rs 5,000 crore (Rs 100crore = Rs 1 billion). Government sources now say that disinvestment may net Rs 6,000 crore (Rs 100 crore = Rs 1 billion) just from the sale of equity in four PSUs - Indian Oil , Gas Authority of India Ltd, Videsh Sanchar Nigam Ltd and Container Corporation of India Ltd - for which cabinet clearance has already been obtained and the lead managers too are in place.

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