History and Statistics
During the fist five year plans government possessed 5 PSUs with investment of Rs 29 crores.At the end of the Seventh Plan in 1990,there were 244 PSUs and the investment in them had gone up to Rs.99,000 crores.The idea of disinvestment first came in 1991-1992.First only a small share of equity in was sold until 2000-2001.
During 2000-2001,there are 122 profit making enterprises with a net profit of Rs 19,000 crores.These include NTPC,ONGC,IOC,VSNL etc.111 companies bore losses with a total loss of Rs 12,839 crores.These include Hindustan Fertilizers,the Fertilizer Corporation of India(FCI), Bharat Coking Coal etc.
So instead of making extra revenue from the PSUs government was not able to get the invested capital!
Process of Disinvestment
There are two ways of disinvestment.
1.Transfer of complete management to private enterprises.
Modern Food Industries,Bharat Aluminum Company Limited (BALCO),VSNL,Centaur Hotel Airport are examples of this kind.
2.Partial selling of shares
Here government sells some part of shares.But still it retains majority of them(51% or higher).This has been adopted in majority of cases.
Advantages
1.To achieve greater inflow of private capital.
This revenue can be used to compensate the deficit finance.
2.Allows new firms to enter into the market and thus increases competition.
3.Brings the low productivity PSUs back on track thereby improving the quality of goods,eliminating excessive manpower utilization and enabling high profits.
Disadvantages
1.Loss of public interests
PSUs are resources of the nation.They belong to the people.By selling them to private companies,government is seriously affecting the people's welfare.
2.Fear of foreign control
Selling equities to foreign companies result in serious consequences shifting the nation's wealth,power and control to outsiders.
3.Issues with workers
The jobs of Lakhs of workers in the PSUs will fall in danger by privatization.
4.Less number of bidders
Even though government plans to disinvest,there are actually less number of people willing to place their bids.
Apart from these,it is the government and not PSUs who receive funds from disinvestment.This raises conflicts between the government and the employment union of the PSU.
Understanding the importance of Disinvestment,a separate wing called "Disinvestment commission" is established to deal with all the issues relating to it.
