Coupon Accepted Successfully!


Disinvestment of Shares of a Select Set of Public Sector Enterprises

Disinvestment involves the sale of the equity shares to the private sector and the public. The aim was to raise resources and encourage wider involvement of the general public and workers in the ownership of these undertakings. The government had taken a decision to pull out from the industrial sector and reduce its equity in all enterprises. It was expected that this would result in improved administrable performance and guaranteeing economic regulation. But there remains far more to be done in this regard. The main aims of making public enterprises private are:
  • Liberating a huge amount of public resources locked up in non strategic Public Sector Enterprises (PSEs), so that they may be used on other social priority areas such as primary education, basic health, and family welfare.
  • Reducing the large amount of public debt and interest burden
  • Transferring the commercial risk to the private sector so that the finances are put in able projects;
  • Releasing these undertakings from government control and introduction of corporate authority; and
  • In many areas where the public sector had a monopoly, for eg, in the telecom sector the consumers have benefited by more choices, quantity and quality of products and services.

Privatisation in India

The first case of successful privatisation of a Central Public Sector Undertaking was the The Lagan Jute Machinery Company Limited (LJMC), which was carried out by the Government. LJMC is a Calcutta-based organisation, and produces jute machinery (primarily drawing frames and spinning). It had on it roll around 400 employees before going private. It began incurring losses from 1996-97 onward and had a decline in the turnover. LJMC's total worth as on March 1998 was approximately Rs. 5 crore and the yearly turnover were also around Rs. 5 crore at that time. In the beginning stages of disinvestment, LJMC was agreed for privatisation through sale of 74 per cent stake to a strategic partner. The disinvestment process was taken care by LJMC's holding company, Bharat Bhari Udyog Nigam Limited (BBUNL), under the managerial control and guidelines of the then Department of Heavy Industries (DHI), Ministry of Industry, Government of India.

  1. Policy as regards sick units to be the same as that for the private sector: All public sector units were referred to the Board of Industrial and Financial Reconstruction to decide if a sick unit was to be restructured or shut down. The Board has reconsidered renewal and rehabilitation schemes for some cases and closing down for a number of units. There is a lot of protest amongst workers of the units which are to be closed down. A National Renewal Fund was started by the government to retrain or reemploy retrenched labour and to give compensation to public sector employees looking for voluntary retirement. There are many undertakings that are sick and inefficient of renewal as they have accrued heavy losses. With public funds under extreme pressure, both state and central government are not capable of sustaining them much longer. The only choice present for the government in such instances is to shut down these enterprises after giving them a safety net for the employees and workers. Resources under the National Renewal Fund have been insufficient in meeting the cost of Voluntary Separation Scheme or Voluntary Retirement Scheme.

Test Your Skills Now!
Take a Quiz now
Reviewer Name