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DISINVESTMENTS IN INDIA: 

The process of disinvestment started with selling of minority shares in Public sector enterprises (PSEs) in 1991-92. The motive behind the process of deregulation was to increase competition and to allow new firms to enter existing markets that were formerly dominated by the PSEs.  This led to the opening up of markets to Indian entrepreneurs and Industrialists along with a simplification of the norms for entry of foreign capital.

The Disinvestment policy as proclaimed by the Government led by Late Sri. Chandra Shekhar was to divest up to 20% of the government equity in selected PSEs in favour of public sector institutional investors.

The common minimum program of the UPA committed the government to a strong public sector  and announced that in general profit making public sector companies will not be privatized also all NAVRATHNA companies would continue to be part of the public sector but would be allowed to raise resources from the capital market. 

There are at present 262 Public Sector Undertakings of Government of India. The multiplicity of these undertakings is the outcome of nationalisation of commercial banks and setting up of huge development financial institutions. Of these 262 enterprises, data on investment, profit and loss are available for 239 units. Of these, 130 are running in profit and 109 are incurring losses. The position of the 239 enterprises is briefly given below. 
 

	Context	Billion Rupees
1	Paid up capital	591.5
2	Net worth	1046.0
3	Capital employed	1738.7
4	Pre- tax profit	140.6
5	Profit after tax	98.6
6	Gross margin to capital employed	23.3%
7	Gross profit to capital employed	16.1%
8	Pre-tax Profit to capital employed	6.0%

 

While contemplating the scope of public sector undertakings it was very clearly stated that among the main objectives, they are to generate more surpluses for investment and increase exports so as to reduce the strain on the balance of payments. Self-reliance was to be promoted to ensure reduction in imports or substitution for imports for strengthening the foundations of the country. The Government and the policy makers, however, failed to insist on the efficient management of the public sector units. This was the result of non-professional management and lack of autonomy in pricing investment and employment policies notwithstanding cry of researchers and experts for the need of allowing the public sector undertakings to function as commercial enterprises. While they were built for a higher capacity in several cases, its full utilisation did not figure in the management agenda mostly due to absence of accountability.

The mechanism of management must have received serious thought but administered price mechanism took away all initiatives and efforts from the managers. With no accountability, a mindless budget support was provided to meet the losses of these undertakings. A complacent attitude ruled. Productivity of both capital and labour employed were ignored. It is estimated that at present total accumulated losses of the public sector enterprises are Rs. 37,000 crores. 

Another fundamental mistake made is that over employment has taken place in these enterprises and 20 lakh workers have been employed on an average monthly remuneration of excess of Rs. 8,000/-, while 10 lakh would suffice. 

The twin mistakes of not insisting on commercial functioning and over-manning of the enterprises has added to the losses and has prevented the infusion of further capital and adoption of new technology to keep pace with what was happening in other parts of the world. 

Of necessity, corrective measures which should have been applied in 1960s and 1970s have now become imperative. Naturally, public sector enterprises have to undergo quick and appropriate restructuring for their survival, avoiding bankruptcy. On two fronts, restructuring becomes imperative. One is induction of fresh capital and the other, infusion of new technology. Both of them were beyond the reach of the public undertakings as well as the budget in their pre-revised status. An easy solution appeared more in the form of proposal to downsizing of labour. But in India with population growth at a high rate and unemployment with restlessness in society would not allow any retrenchment. One of the methods thought of was disinvestment: That a part of the Government shareholdings in the public sector enterprises be sold to private sector. Originally it was thought that the Government would start with a disinvestment of 20% of its shares in the public sector enterprises and by and by 40% of the shares would be sold to the private sector and the money received through disinvestment would be utilised as additional capital which would facilitate modernisation. Later, the Government appointed Rangarajan Committee which suggested that case of each public sector unit should be examined on merits and the disinvestment could be anywhere between 26 to 74%. The Government while accepting the recommendations of Rangarajan Committee appointed a Disinvestment Commission which would recommend to the Government the specific enterprises in which disinvestment should be introduced, the extent of disinvestment and the manner of disinvestment.

 
 

About 50 public sector units were referred to the Disinvestment Commission. Out of them seven public sector units were withdrawn by the Government. Such a hasty decision does no good to the Government. Before any public sector unit is referred to the Disinvestment Commission the matter should be fully examined. The Disinvestment Commission after a very detailed analysis of the structure, finances, manpower, technology and the application of public purpose test recommended that 9 public sector units should be continued to be in public sector; there can be partial disinvestment in 9 public sector units; there should be substantial disinvestment in 16 units and in the case of 9 units there should either be a strategic sale or closure. In the absence of proper machinery for acting on the recommendations of the Disinvestment Commission, the whole matter was put on the back-burner. 

If resource mobilisation for making public sector enterprises viable and more competitive in order to support a high growth rate of the economy is the objective, disinvestment can provide the correct answer. 

However, one important element in any programme of restructuring is surplus labour. Twenty lakh total employments in 262 enterprises excludes temporary labour employed by these undertakings. In several cases it was reported that is was a substitute for indifference of the permanent labour. On a broader assessment it appears that one-half is surplus which implies that nearly 10 lakh workers out of the 20 lakh are to be laid off in the ultimate analysis. In its fourth report, the Disinvestment Commission considered the matter seriously regarding the employment of excess labour. Unfortunately even the serious thinking had no effect on Government. Perhaps this was due to the political atmosphere in the country and any step reducing the employment of labour affecting the stability of the Government. There are some lessons which we can very well learn from what is happening in a country like China which is undergoing more or less similar restructuring process. With a very large number of State-owned enterprises, out of a total of more than 4 lakh, employing more than 10 crore workers, turning red following the reforms and opening up. There has been an alarming rise in such units laying off surplus workers leading to massive unemployment and social tensions in China. In fact unemployment, rather than inflation, has turned out to be the thorniest issue in China after a successful soft landing of its economy. According to available statistics there are about 17 million surplus workers in China accounting for 16.5% of China’s workforce. The reluctance of the Government in India to downsize the employment in the public sector is perhaps explained by what has happened in China. Disinvestment Commission since now been dissolved.