Analyse the process of disinvestment in the central public enterprises in India.

Disinvestment and Privatisation of Public Sector Enterprises in India!

Meaning of Disinvestment:

An important aspect of present industrial policy of the Government is that it should not operate commercial enterprises.

With that end in view the Government has decided to disinvest the public enterprises. The Government can sell its enterprises completely to the private sector or disinvest a part of its equity capital held by it to the private sector companies or in the open market.

Distinction may be drawn between disinvestment and privatisation. Strictly speaking, disinvestment means the dilution of stake of the Government in a public enterprise. This can be done in two ways. When the Government sells a part of its equity of a public enterprise less than 50 per cent of its total stock, it is called merely disinvestment and in this case control and management of the business enterprise remains in the hands of Government.

On the other hand, when disinvestment or sale of its equity capital by the Government exceeds 50 per cent so that the majority ownership and therefore control and management of the enterprise is transferred to private enterprise, it results in privatisation. Therefore, in many disinvestment programmes government retains 51 per cent or more of the total equity capital of the public enterprises so that control and management remains in its hands.

Through disinvestment or privatisation, the Government can mop up a good amount of resources which can be used for various purposes. The released resources can be used to restructure and strengthen the public sector enterprises which are potentially viable. These resources can also be used to pay back a part of public debt. These resources can also be used to finance budget deficits.

Case for Public Sector Disinvestment:

What are the reasons for the policy of public sector disinvestment or privatisation? First, resources available with the Government are scarce. The Government needs resources to reduce its budget deficit. Second, the Government urgently requires resources to make investment in infrastructure, social sectors such as education, public health and for poverty alleviation programmes. Resources released through disinvestment can be used for investment in these crucial sectors.

Thirdly, a good number of existing public enterprises are working inefficiently and incurring huge losses. Disinvestment can lead to the improvement of efficiency of these enterprises. When government divests a good part of its stake to a private enterprise or public at __________ ________ _________ ____ ___ ___ ____ ______.
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