What is Public Sector Undertakings Disinvestment?

Government controlled Public sector undertakings were formed with the object of providing necessary infrastructure for the fast growth of economy. They were to act as Kingpin for the socialistic development of mixed economy. Of India as also as a safeguard against monopoly of industrialist community.

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The term disinvestment refers to withdrawal of govt. shares of capital invested in public sector undertakings (PSUs). Government controlled Public sector undertakings were formed with the object of providing necessary infrastructure for the fast growth of economy. They were to act as Kingpin for the socialistic development of mixed economy. Of India as also as a safeguard against monopoly of industrialist community. But either due to mismanagement or for lack of experience many of the PSU’s could not give expected or satisfactory results and finally became a liability upon the ex-chequer. In order to do away with the recurring loss the government in its Industrial policy of 1991 envisaged disinvestment of a part of government holdings in the share capital of some selected sick PSU’s with the hope that this would provide market discipline and ultimately improve the performance of such PSU’s apart from releasing huge amount of capital which could be used for accelerating economic growth of the country.
To protect the interests of the public sector workers National Renewal Fund (NRF) was set up in 1992. Provision of the sick Industrial companies Act had to be amended to bring the Public Sector Undertaking within the preview of the Act. The United Front Government set up the Disinvestment Commission under the chairmanship of Sri. G. V. Ramakrishna in August 1996 which completed its tenure on November 30, 1999. The said commission carried out an intensive survey of 58 public sector undertakings and submitted twelve reports of its findings to the Government. The recommendations of this commission have been implemented only in a few cases.

But during the past few months the government has succeeded in disposing off 14 entities releasing thereby Rs 10,937 crore. Thus the Government has by now realized nearly Rs. 25,000 crore since 1992. As a result the value of shares of Public sector Undertakings has gone up by nearly 75% after January 2002. In July 2002 the disinvestment Ministry proposed to sell out 10 to 15 percent stake in different PSU’s to reap the benefit of the buoyant market conditions.


Privatization of public sector Undertakings is giving the desired results. It results in efficient use of resources whereby scarce resources like land, capital and machinery are put to more efficient use. The economy as a whole is benefited by increased efficiency of the units and the fiscal mess is reduced by lessening of liabilities. Inefficient PSU, S were largely responsible for the macro-economic crisis faced by India during 1980,s although they were set up for the purpose of providing employment and at the same time generate revenue surplus. But they could not stand to expectations. Hence steps for disinvestment had to be taken.

Political parties of the country have been debating the sale of PSU’s mainly due to the controversy about the valuation of assets and their acquisition by companies with doubtful credentials. There is opposition against the sale of profit giving establishments. It is also argued that disinvestment is unavoidable for the success of second generation reforms. Health of the stock market is essential with the progress of economic reforms.

To make the disinvestment process a success it is essential that profit making companies be distinguished from loss incurring companies. There must be transparency in the deals made in disinvestment. Method and basis of valuation of assets must be revealed to the public when a public undertaking is sold off. This would eliminate suspicious of any malpractice as would also fetch competitive price of assets. Further, legitimate demands and expectation of labor force should not be overlooked and care must be taken that either they are not thrown out of employment or alternate jobs are provided to them. Hence social implications of labor structuring should be properly studied. Scheme of voluntary retirement may be adopted so that persons willing to take retirement may lead a better life. This wills garner support for privatization. The proceeds of disinvestment should be spent for social uplift. These should not be utilized to meet the fiscal deficit because the aim of disinvestment as proclaimed by the Government is to reduce public debt and provided funds for social sector. It would be appropriate if suggestions made by the Disinvestment commission are strictly adhered to.

It is significant to note that NDA Government, constituent parties where-of hold different views has unanimously given signal its verdict in favor of disinvestment. A unanimous decision to give a green signal to disinvestment was taken in a meeting of the cabinet committee on disinvestment under the chairmanship of Prime Minister Shri Atal Bihari Vajpayee on December 5, 2002. Members of the coalition parties including those of Bhartiya Janata Party were arguing in different voices over the advantages and disadvantages of disinvestment. But ultimately they decided to sink their differences for the common good of the country.


But controversy on the issue of disinvestment arose when the petroleum Ministry was opposed to the sale of Hindustan petroleum Ltd. On the plea that it would be better to opt for Initial Public offers so that sufficient resources could be raised to carry out expansion plans. Disinvestment Ministry, on the other hand, insisted that time was ripe for sale of both the companies as the market was favorable. At the same time Shri George Farnades, the Defense Minister pleaded for the review of the entire programme of disinvestment, more so for the oil sector companies on account of their strategic importance in matters of minister informed both houses of parliament that it was not advisable to review the issue of disinvestment and that the govt. was going ahead with the process of privatization of both companies viz. Hindustan Petroleum Corporation Ltd. and Bharat Petroleum Corporation Ltd. he further announced that Hindustan Petroleum Corporation was being handed over to a strategic partner and in case of Bharat petroleum Corporation Ltd. private offers were being invited. Mr. Shourie also announced that disinvestment Funds would be separately set up for financing fresh employment opportunities for further investment and for the retirement of public debt. A petition against the disinvestment policy was field in the Supreme Court on 19th November, 2002 on the ground that Disinvestment is a policy matter and the Humble court would not interfere in policy matters of the Government. In the judgment it was also pointed out that every socialist country like China had adopted the policy of economic liberalization and was introducing necessary reforms in the direction. Hence it may be concluded that the policy of Disinvestment should be taken as a part of economic reforms which are so necessary for the country.

But the judgment on two public interest petitions filed by oil sector officers Association and the Centre for public Interest Litigation, the Supreme court’s verdict has gone against the Govt. with regard to disinvestment of Hindustan petroleum Corporation Ltd. and Bharat Petroleum Corporation Ltd. the supreme court has restricted the Government from going ahead with the disinvestment process for HPCL and BPCL for which approval of the Parliament is necessary.

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