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Disinvestment in india

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PriyaRamalingam5493

The document discusses disinvestment in India, including its objectives, benefits, types, and process. Some key points: - Objectives of disinvestment include reducing financial burden on the government, improving public finances, and introducing competition. - Benefits are for the government, markets, taxpayers, employees, and public sector units. It allows the government to focus on core activities. - Types of disinvestment are minority disinvestment, majority disinvestment, and complete privatization. - The disinvestment process involves methods like net asset value, profit earning capacity, and discounted cash flow valuation.

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DISINVESTMENT IN INDIA
Investment “The conversion of money or cash into securities, debentures, bonds or any other claims on money”
Disinvestment ‘‘ The conversion of money claims or securities into money or cash” ‘‘ The action of an organisation/government selling or liquidating an asset or subsidiary, also known as divestment or divestiture’’
OBJECTIVES OF DISINVESTMENT • To Reduce the financial burden on the Government • To Improve public finances • To introduce the competition and market discipline • To fund growth of sectors • To encourage wider share of ownership
• To depoliticise non-essential services • To meet the budgetary needs • To improve overall economic efficiency • To raise funds for technological upgradation, modernization • To expand the PSUs.
BENEFITS OF DISINVESTMENT For the Government Can focus more on core activities such as infrastructure, defense, education, healthcare, and law & order. For the Markets and Economy Brings about greater efficiencies for the economy and markets as a whole.
For the Taxpayers Unlocking of shareholder value For the Employees Greater opportunities and avenues for career growth- further employment generation For the PSUs Greater autonomy leading to higher efficiencies
REASON FOR DISINVESTMENT Divestment campaigns are based on a fundamental misunderstanding of how stock markets work.
TYPES OF DISINVESTMENT • Minority Disinvestment • Majority Disinvestment • Complete Privatisation
Minority Disinvestment • When the government retains a majority stake in the company, greater than 51%, thus ensuring management control. • Minority stakes have been either auctioned off to financial institutions or offloaded to the public as Offer for Sale. • Present governments policy - All disinvestments would only be minority disinvestments via Public Offers
MAJORITY DISINVESTMENT • The governments post disinvestment will retain a minority stake in the company (it sells off a majority stake) • Its been made to strategic partners like CPSE,BRPL to IOC, MRL to IOC, KRL to BPCL • Majority stake is offloaded as an Offer for Sale to a strategic partner.
COMPLETE PRIVATISATION • Form of majority disinvestment wherein 100% control of the company is passed on to a buyer • Disinvestment and Privatisation When the Government retains 26% of the shares carrying voting powers while selling the remaining to a strategic buyer, it would have disinvested, but would not have privatised because with 26%, generally a special resolution 3/4th majority is required.
DECISION FOR DISINVESTMENT • Whether the objectives of the company are achieved • Whether there is decrease in number of beneficiaries • Whether serving the national interest will be affected • Whether private sector can efficiently operate • Whether the original rate of return targeted could not be possible to achieve
MINISTRY OF DISINVESTMENT • Set up as an independent ministry in December 1999 • Came into existence in May 2004 into a department of the Ministry of Finance. • Responsible for systematic policy approach to disinvestment and privatisation of PSU
CHARGES AGAINST THE PUBLIC SECTOR FOR ITS POOR PERFORMANCE • Low rate of return on Investment • Declining contribution to national savings • Poor capacity utilization • Overstaffing, bureaucratization leading to excessive delays and wastage of resources. Due to this many public sector enterprises have become more a burden than an asset to the government.
SALIENT FEATURES OF THE POLICY • Citizens have every right to own part of the shares of PSU • PSU are the wealth of the Nation and so should rest in the hands of the people • While pursuing disinvestment, Government has to retain majority shareholding(51% management control)
FIVE- POINT AGENDA FOR POLICYMAKERS • Trust the home grown expert • Place administrative control in the hands of the Finance Minister • Hand over companies that are a burden on the government to the employees • Do not involve a PSU/SOE in the bidding process • Manage revivals
DISINVESTMENT PROCESS
DISINVESTMENT METHODS IN INDIA NET ASSET METHOD • Indicates the net assets of the enterprise as shown in the books of accounts(historical value of the assets) • It is the cost price less depreciation provided so far on assets. • It does not reflect the true position of profitability like goodwill, brands, distribution network and customer relationships • This model is more suitable in case of liquidation than in case of disinvestment.
PROFIT EARNING CAPACITY VALUE METHOD • The profits actually earned or anticipated. • It values a company on the basis of the underlying assets. • This method does not consider or project the future cash flow.
DISCOUNTED CASH FLOW METHOD (SUPERIOR METHOD) • The future incremental cash flows are forecasted and discounted into present value by applying cost of capital rate • The projects future cash flows takes into account of intangibles such as - Brand Equity - Marketing - Distribution Network - Level of competition in future - Risk Factors
DISINVESTMENT PERFORMANCE IN INDIA
TIMING OF DISINVESTMENT RELATIVE STRENGTH INDEX (RSI) • Developed by 'Wells Wilder‘ • To identify the inherent technical strength or weakness. R.S.I=100-[100] 1+Rs where, Rs = Average gain per day Average loss per day 100 = present days share price
3 P'S OF DISINVESTMENT • Promise • Policy • Performance
PROBLEMS OF PUBLIC SECTORUNDERTAKINGS • Price policy of public sector undertakings • Under utilization of capacity • Problem related to planning and construction of projects • Problems of labour, personnel and management • Lack of autonomy
TOP 7 DISINVESTEDCOMPANIES IN INDIA • Shipping Credit and Investment Corporation of India • Container Corporation of India Ltd. • Videsh Sanchar Nigam Ltd. (VSNL) • Oil and Natural Gas Corporation (ONGC) • Gas Authority of India Ltd. (GAIL) • Steel Authority of India Ltd. (SAIL) • Mahanagar Telephone Nigam Ltd. (MTNL)
BHEL • Finance ministry decided to disinvest in BHEL and opened the share’s to public on 03/03/2014 • A total of 11,41,00,000 shares were opened to public • The Final offer price for shares was 165.55 rupees • The total percentage of shares disinvested is 5% • After disinvestment the Indian government holding in BHEL came down from 67.72% to 62.72%
POWER GRID CORPORATION • The shares was opened to public on 03/12/2013 • Total number of shares issued 18,51,89,014 i.e. 4% of the total shares • Shares were issued in order to generate profit
SAIL • Steel Authority of India Ltd is about to sell the 5% of the stake in October 2014 • Rs 58,425 crore was expected to be raised through the stake sales • The Government also plans to sell the shares of COAL India.
Recent news • Proceeds from national investment fund to be used to recapitalise PSU banks • The government decided to use the proceeds from disinvestment for capitalisation of state-run banks, insurance companies and for subscription of shares of state-owned firms to maintain its 51% stake(a plan introduced in 2013-14) • The decision was taken at the meeting of Cabinet Committee of Economic Affairs (CCEA) in order to align operations of National Investment Fund (NIF) and improve the disinvestment policy.
SUGGESTIONS • The government has to form a policy framework for the entire disinvestment process. • The government should de-link the disinvestment process from the budgetary exercise. • Government should stop setting up of the targets in every year annual budget and should have a long- term plan.
• A separate fund should be created for disinvestment and it should be kept under the control of president and the fund should be utilized for building infrastructure and developing the social sector. • Timing of disinvestment is crucial and the government should follow a specific method or process in order to reap more chunks. • The entire exercise of disinvestment should be audited by not less than two reputed auditing firms to have a transparent process. • The government should have an 'Yearly Action Plan‘ and at the end of the year an 'Action Taken Report' has to be submitted.
Conclusion • The study of disinvestment for a such a long period has revealed that a very meager amount of disinvestment proceeds has been realized as against the target. • There is no clear-cut framework or policy for disinvestment in India. • The government has done a little or more so failed to attract foreign suitors for the disinvestment process in India.
• The disinvestment process needs to be taken up more seriously by the government with a time bound for the programme to conduct the process with transparency • the need for institutional structures to insulate the PSEs from political and bureaucratic interference to improve their financial returns. • Only then the real benefits can be reaped.
RERFERNCES • 1. Government of India, Economic Survey 2001-02, 2002-03, 2003- 04, 2004-05, 2005-06, 2006-07, 2007-08 New Delhi. • 2. Aswathappa K., Essentials of Business Environment 7th edition 2004, Himalayan Publishing House, New Delhi. • 3. Datt Ruddar and Sundharam K.P.S., Indian Economy, S, Chand and Company Ltd. New Delhi 2008. • 4. Mishra and Puri, Indian Economy, Himalayan Publishing House, New Delhi 2007. • 5. G. S. Batra, Emerging trend in Globalisation, Liberalisation and privatization (edited) 17-36, 2001.
Thank you

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Disinvestment in india

  • 2. Investment “The conversion of money or cash into securities, debentures, bonds or any other claims on money”
  • 3. Disinvestment ‘‘ The conversion of money claims or securities into money or cash” ‘‘ The action of an organisation/government selling or liquidating an asset or subsidiary, also known as divestment or divestiture’’
  • 4. OBJECTIVES OF DISINVESTMENT • To Reduce the financial burden on the Government • To Improve public finances • To introduce the competition and market discipline • To fund growth of sectors • To encourage wider share of ownership
  • 5. • To depoliticise non-essential services • To meet the budgetary needs • To improve overall economic efficiency • To raise funds for technological upgradation, modernization • To expand the PSUs.
  • 6. BENEFITS OF DISINVESTMENT For the Government Can focus more on core activities such as infrastructure, defense, education, healthcare, and law & order. For the Markets and Economy Brings about greater efficiencies for the economy and markets as a whole.
  • 7. For the Taxpayers Unlocking of shareholder value For the Employees Greater opportunities and avenues for career growth- further employment generation For the PSUs Greater autonomy leading to higher efficiencies
  • 8. REASON FOR DISINVESTMENT Divestment campaigns are based on a fundamental misunderstanding of how stock markets work.
  • 9. TYPES OF DISINVESTMENT • Minority Disinvestment • Majority Disinvestment • Complete Privatisation
  • 10. Minority Disinvestment • When the government retains a majority stake in the company, greater than 51%, thus ensuring management control. • Minority stakes have been either auctioned off to financial institutions or offloaded to the public as Offer for Sale. • Present governments policy - All disinvestments would only be minority disinvestments via Public Offers
  • 11. MAJORITY DISINVESTMENT • The governments post disinvestment will retain a minority stake in the company (it sells off a majority stake) • Its been made to strategic partners like CPSE,BRPL to IOC, MRL to IOC, KRL to BPCL • Majority stake is offloaded as an Offer for Sale to a strategic partner.
  • 12. COMPLETE PRIVATISATION • Form of majority disinvestment wherein 100% control of the company is passed on to a buyer • Disinvestment and Privatisation When the Government retains 26% of the shares carrying voting powers while selling the remaining to a strategic buyer, it would have disinvested, but would not have privatised because with 26%, generally a special resolution 3/4th majority is required.
  • 13. DECISION FOR DISINVESTMENT • Whether the objectives of the company are achieved • Whether there is decrease in number of beneficiaries • Whether serving the national interest will be affected • Whether private sector can efficiently operate • Whether the original rate of return targeted could not be possible to achieve
  • 14. MINISTRY OF DISINVESTMENT • Set up as an independent ministry in December 1999 • Came into existence in May 2004 into a department of the Ministry of Finance. • Responsible for systematic policy approach to disinvestment and privatisation of PSU
  • 15. CHARGES AGAINST THE PUBLIC SECTOR FOR ITS POOR PERFORMANCE • Low rate of return on Investment • Declining contribution to national savings • Poor capacity utilization • Overstaffing, bureaucratization leading to excessive delays and wastage of resources. Due to this many public sector enterprises have become more a burden than an asset to the government.
  • 16. SALIENT FEATURES OF THE POLICY • Citizens have every right to own part of the shares of PSU • PSU are the wealth of the Nation and so should rest in the hands of the people • While pursuing disinvestment, Government has to retain majority shareholding(51% management control)
  • 17. FIVE- POINT AGENDA FOR POLICYMAKERS • Trust the home grown expert • Place administrative control in the hands of the Finance Minister • Hand over companies that are a burden on the government to the employees • Do not involve a PSU/SOE in the bidding process • Manage revivals
  • 19. DISINVESTMENT METHODS IN INDIA NET ASSET METHOD • Indicates the net assets of the enterprise as shown in the books of accounts(historical value of the assets) • It is the cost price less depreciation provided so far on assets. • It does not reflect the true position of profitability like goodwill, brands, distribution network and customer relationships • This model is more suitable in case of liquidation than in case of disinvestment.
  • 20. PROFIT EARNING CAPACITY VALUE METHOD • The profits actually earned or anticipated. • It values a company on the basis of the underlying assets. • This method does not consider or project the future cash flow.
  • 21. DISCOUNTED CASH FLOW METHOD (SUPERIOR METHOD) • The future incremental cash flows are forecasted and discounted into present value by applying cost of capital rate • The projects future cash flows takes into account of intangibles such as - Brand Equity - Marketing - Distribution Network - Level of competition in future - Risk Factors
  • 23. TIMING OF DISINVESTMENT RELATIVE STRENGTH INDEX (RSI) • Developed by 'Wells Wilder‘ • To identify the inherent technical strength or weakness. R.S.I=100-[100] 1+Rs where, Rs = Average gain per day Average loss per day 100 = present days share price
  • 24. 3 P'S OF DISINVESTMENT • Promise • Policy • Performance
  • 25. PROBLEMS OF PUBLIC SECTORUNDERTAKINGS • Price policy of public sector undertakings • Under utilization of capacity • Problem related to planning and construction of projects • Problems of labour, personnel and management • Lack of autonomy
  • 26. TOP 7 DISINVESTEDCOMPANIES IN INDIA • Shipping Credit and Investment Corporation of India • Container Corporation of India Ltd. • Videsh Sanchar Nigam Ltd. (VSNL) • Oil and Natural Gas Corporation (ONGC) • Gas Authority of India Ltd. (GAIL) • Steel Authority of India Ltd. (SAIL) • Mahanagar Telephone Nigam Ltd. (MTNL)
  • 27. BHEL • Finance ministry decided to disinvest in BHEL and opened the share’s to public on 03/03/2014 • A total of 11,41,00,000 shares were opened to public • The Final offer price for shares was 165.55 rupees • The total percentage of shares disinvested is 5% • After disinvestment the Indian government holding in BHEL came down from 67.72% to 62.72%
  • 28. POWER GRID CORPORATION • The shares was opened to public on 03/12/2013 • Total number of shares issued 18,51,89,014 i.e. 4% of the total shares • Shares were issued in order to generate profit
  • 29. SAIL • Steel Authority of India Ltd is about to sell the 5% of the stake in October 2014 • Rs 58,425 crore was expected to be raised through the stake sales • The Government also plans to sell the shares of COAL India.
  • 30. Recent news • Proceeds from national investment fund to be used to recapitalise PSU banks • The government decided to use the proceeds from disinvestment for capitalisation of state-run banks, insurance companies and for subscription of shares of state-owned firms to maintain its 51% stake(a plan introduced in 2013-14) • The decision was taken at the meeting of Cabinet Committee of Economic Affairs (CCEA) in order to align operations of National Investment Fund (NIF) and improve the disinvestment policy.
  • 31. SUGGESTIONS • The government has to form a policy framework for the entire disinvestment process. • The government should de-link the disinvestment process from the budgetary exercise. • Government should stop setting up of the targets in every year annual budget and should have a long- term plan.
  • 32. • A separate fund should be created for disinvestment and it should be kept under the control of president and the fund should be utilized for building infrastructure and developing the social sector. • Timing of disinvestment is crucial and the government should follow a specific method or process in order to reap more chunks. • The entire exercise of disinvestment should be audited by not less than two reputed auditing firms to have a transparent process. • The government should have an 'Yearly Action Plan‘ and at the end of the year an 'Action Taken Report' has to be submitted.
  • 33. Conclusion • The study of disinvestment for a such a long period has revealed that a very meager amount of disinvestment proceeds has been realized as against the target. • There is no clear-cut framework or policy for disinvestment in India. • The government has done a little or more so failed to attract foreign suitors for the disinvestment process in India.
  • 34. • The disinvestment process needs to be taken up more seriously by the government with a time bound for the programme to conduct the process with transparency • the need for institutional structures to insulate the PSEs from political and bureaucratic interference to improve their financial returns. • Only then the real benefits can be reaped.
  • 35. RERFERNCES • 1. Government of India, Economic Survey 2001-02, 2002-03, 2003- 04, 2004-05, 2005-06, 2006-07, 2007-08 New Delhi. • 2. Aswathappa K., Essentials of Business Environment 7th edition 2004, Himalayan Publishing House, New Delhi. • 3. Datt Ruddar and Sundharam K.P.S., Indian Economy, S, Chand and Company Ltd. New Delhi 2008. • 4. Mishra and Puri, Indian Economy, Himalayan Publishing House, New Delhi 2007. • 5. G. S. Batra, Emerging trend in Globalisation, Liberalisation and privatization (edited) 17-36, 2001.