Disinvestment of equity shares in public sector undertaking

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[...] In the disinvestment process maintained above, the ‘Department of Disinvestment' is assisted, at each stage by ‘Inter Ministerial Group' comprising officers from the ‘Ministry Of Finance' Department of Public Enterprises, The Administrative Ministry, Department controlling PSUs (Department Of HR and PE)and Officers of Department of Disinvestment and Advisors. CONCLUSIONS The studies on Disinvestment of public sector undertakings have revealed the following conclusions: 1. There is no clear-cut framework or policy for disinvestment in India The entire proceeds of disinvestment are been used to mitigate the gap fiscal deficit instead of using them for development of social sector & building infrastructure The government has not been concentrating on the timing of disinvestment as a result most of the private sector investors are shying away form the process because of the unattractive offers made by the government There is no transparency in the entire process of disinvestment in India The government has done a little or more so failed to attract foreign suitors for the disinvestment process in India. [...]

[...] Offer of Shares This measure involves partial sale of equity ownership at fix price by book building process. Closure or Sale of Asset In Case, there is no ‘investor interest' in the company, the commission is of the view that there would be no option but to close down the operations of the company and liquidate all its assets and liabilities. MERITS OF DISINVESTMENT PROCESS The disinvestment process is advocated for the following reasons: The basis problem with PSUs is neither the quality of assets nor the skilled manpower, but the overall decision making system. [...]

[...] Rationale for Disinvestment Mechanism-A direct offer of shares to the public was not feasible because even with most sophisticated valuation skill a fair issue price on company basis was possible to determine since the PSUs were unknown to the market. The risk of over-pricing or under-pricing on a company specific basis was real but clearly unaffordable. Following methods are identified for valuing the shares for disinvestment by PSUs Net Asset Value (NAV) 2. Profit-Earning Capacity Value (PECV) method at capitalization rate of to Discounted Cash Flow (DCF) method based on about 5 years discounted rate. [...]

[...] Mobilization-With the help of disinvestment pogram, government would be in a position to generate sufficient resources. Out of such funds, government can make available some funds as loan to PSUs. Direct Participation of Public-Such disinvestments would enable the public, to participate in the equity of PSUs. Encourage Employee Ownership-This would encourage the employees to buy shares pf PSUs. This may motive them to work harder and improve the work culture. Reduction of Bureaucratic Control-This may provide more autonomy to the management of PSUs. [...]

[...] CRITERIA FOR DISINVESTMENT The decision regarding disinvestment or liquidation viewed in the light of following criteria: Whether the objectives of the company are achieved Whether there is decrease in number of beneficiaries Whether serving the national interest will be affected because of disinvestment Whether private sector can efficiently operate and manage the undertaking. Whether the original rate of return targeted could not be possible to achieve. Whether socio-economic objectives lots its purpose. OBJECTIVE OF DISINVESTMENT The government has been disinvesting its equity holding in PSUs largely since 1991 with the following major objectives. [...]