In this post, you will learn about the concept of disinvestment. The performance of the public sector was far from acceptable. Diseconomies of scale crept into the public sector.
The nine high-performing public sector enterprises (Navratnas) account for approximately 75 per cent of profits of all public sector enterprises. Most of the others are running in losses. The profitability and ROI of profit-making units too is very low in comparison to industry standards.
Of the several factors responsible for low profits in the public sector undertakings, the following are specifically important:
1. Price policy of public sector undertaking
2. Underutilisation of capacity
3. Problems related to planning and construction of projects
4. Problems of labour, personnel and management
5. Lack of autonomy.
In order to ease these problems, the government decided to disinvest its stake in PSUs.
It is important for you to understand that disinvestments connote decrease government stake in the public sector. Disinvestment includes the conversion of money claims or securities into money or cash. They may or may not lead to privatisation, i.e., transfer of control in private hands. Similar to the case of Maruti Suzuki and BALCO, disinvestments led to the transfer of control into private hands, but in the case of public sector banks and most of the oil companies, disinvestments ensued in the issue of shares through the IPO route to general public and financial institutions, and thus, majority stake and control remained with the government.
The disinvestment programme was initiated in 1991-92. The total realisation to the government from several rounds of disinvestments till 1998-99 was Rs. 16,809 crores.
