Disinvestment is one of the most discussed topics in today’s economy.
The Government is aiming to raise the disinvestment proceeds to 1 lakh
Crore by the end of this Financial Year. The process for disinvestment
of 24 Central Public Sector Enterprises has started already. While there
might be voices for or against it, but every rational business minded
individual would agree that disinvestment is the need of the hour.
What exactly is disinvestment?
To put it in the layman’s language selling of shares of Public Sector Units is disinvestment. Disinvestment of PSUs is generally undertaken when it becomes burdensome and problematic for the government to run it smoothly. The Government through strategic disinvestment can then raise revenue as well as breathe life into the PSU concerned. Disinvestment maybe through various methods like Initial Public Offer, Further Public Offer, Sale Offer, Strategic sale, Institutional Placement programs, etc.
Why do we need disinvestment?
The current competitive environment is compelling most PSUs to run into losses. However there is more to the story than just revival of PSUs. The financing of increasing fiscal deficit is possible through disinvestment. As the earnings from GST fall disinvestment can be a major revenue earner for the Government. Besides, strategic disinvestment also encourages improving large-scale infrastructure and induces non-essential services to run outside the influence of politics.
The Procedure for disinvestment of PSU
According to the Department of Investment and Public Asset Management
the procedure for disinvestment includes the following steps:
• Gaining consent of the Administrative Ministry of the CPSE.
• Approval of Disinvestment proposal
• Formation of Inter-Ministerial Group to supervise the entire process.
• Appointment of Legal Advisors and Merchant Bankers to take care of the transactions
• The advisors mentioned above then present the state of affairs to an High Level Committee.
• The committee then recommends the floor price and price band to “Alternative Mechanisms”
• Finally the “Alternative Mechanism” approves the price band.
Why the road ahead is tough:
The road isn’t smooth for the Government when it comes to Disinvestment as in most cases the PSUs are running in losses. The government’s unwillingness to leave full control also emerges as a big challenge. Most disinvestments in India today takes place either in the form of buy back of shares or mergers of the PSUs, however it is very important for the government to look for more opportunities of privatization. With the NDA government coming to power with a massive majority it is no wonder that the expectations towards strategic disinvestments are pretty high.
Advocate, High Court at Calcutta