Page 39 - IMDR JOURNAL 2020-21

IMDR’s Journal of Management Development and Research 2020-21

economic infrastructure, income etc. There is need (IMG) with the approval of the Finance Minister to
to expand the activities of the state in priority areas. guide and oversee the disinvestment process.
Hence, more resources can be devoted to such 4. IMG appoints Advisers for the transaction
areas by removing resources from public sector units. including Merchant Bankers/ Book Running Lead
Managers (BRLMs)/ Legal Advisers.
Another reason is to improve efficiency of 5. Presentation by BRLMs before High Level
working and management . If public sector units Committee (HLC) on valuation.
are privatized it will be free from the control of 6. HLC recommends price band/ floor price to
government and will function more efficiently. ‘Alternative Mechanism’ taking into consideration
Even if the extent of disinvestment is less than 50 the recommendation of the BRLMs.
percent so that the government retains control of the 7. Approval by ‘Alternative Mechanism’ of
unit, the induction of private ownership can have a recommended price band/ floor price, method of
salutary effect on the functioning of an enterprise. It disinvestment, price discount for retail investors and
increases the accountability of management. employees, etc.
Flexibility in ownership structure can, in effect, In the initial years the government went in for sale
impart efficiency. Therefore , Disinvestment can be of minority stakes without transfer of management
regarded as a tool for enhancing economic efficiency. control. In recent years the government has modified
its policy and has emphasized strategic sale. Strategic
1.4 How Much Disinvestment ? sale means sale of majority shares to a partner with
The next question is the extent of disinvestment to transfer of management control. According to the
be made in a n enterprise. government the disadvantages of sale of minority
In 1991 government divided public sectors into stakes are follows:
two parts : strategic and non – strategic for purpose of (i) Lower realization because the management
disinvestment . strategic public sector included areas control is not transferred.
of defense production, atomic energy and railway (ii) With the limited holding remaining with
transport. Remaining were into non-strategic group. the government after minority sales, only small
For non strategic public sector undertakings, it was stakes can be offered to the strategic partner, if it is
decided that the reduction of government’s stake to decided to go for strategic sale subsequently. This
26 percent would not be automatic and the manner depresses the possibility of higher realization from
and pace of doing so would be worked out in case the strategic partner. (iii) The minority sales also
to case basis. give the impression that the main objective of the
The level of disinvestment depends on target level government is to obtain funds for reducing its fiscal
of government ownership in the enterprise. target deficit and not to improve performance of the units
level could be 26% for limited control ,51% for disinvested.
effective control and 100% for full ownership.
1.6 Disinvestments Issues
1.5 Process of Disinvestment The policy of disinvestment by government are
The disinvestment process of individual CPSEs criticized by many groups . They have raised several
has evolved over time and is based on decision- issues regarding disinvestments which are as follows,
making through inter-ministerial consultations and 1) Process of disinvestment: the government
involvement of professionals and experts, in view of does not have a clear policy on the methodology of
the technical and complex nature of transactions and disinvestment
the need for transparency and fair play. The current Earlier the government followed the policy of open
disinvestment process involves the following steps: auction sale. This method gave excellent result in
1.In-principle consent by the Administrative 1994-95 when realization was Rs. 4843 crore against
Ministry of the Central Public sector enterprise the target of Rs. 4000 crore. But later in 1999-2000
CPSE concerned. the government has shifted to strategic sale. It has
2. Approval of the proposal to disinvest by been argued by the disinvestment ministry that the
CCEA. public offer method is dilatory and takes a long time
3. Constitution of an Inter-Ministerial Group to complete the process of disinvestment.

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