8/13/2019 Case Study Macro Disinvestment Trouble

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Disinvestment of government-owned shares in public sectorundertakings (PSUs), cur-

rently a topic of intense discussionwithin the finance ministry, is not anew idea. It was mooted as early as1991, when Yashwant Sinha’s vote-on-account budget in March out-lined the importance of the govern-ment divesting its equity stake inPSUs. Later that year, Manmohan

Singh, as finance minister, gingerlybegan work on disinvestment of gov-ernment shares in selected PSUs.The National Democratic Alliancegovernment from 1998 to 2004 gavedisinvestment a different push bygoing for privatisation of a few PSUsby selling the government’s majori-

ty stake in them in favour of privateplayers. Disinvestment slowed downconsiderably in the first term of theUnited Progressive Alliance (thanksto the political pressure the Left par-ties succeeded in exerting on theCongress, their alliance partner), butpicked up in the UPA’s second termwhen there was no such pressurefrom the Left.

The total proceeds from disin-vestment in the last 22 years are esti-mated at ~1.38 lakh crore. As many

as 50 PSUs are listed on the stockexchanges, accounting for about 15per cent of total market capitalisa-tion of all listed companies. Thisnumber does not include the PSUsthat were privatised, such as VSNL,Balco, Maruti Udyog, HindustanZinc, CMC, IPCL and a handful of 

hotel properties owned by IndiaTourism Development Corporation.It is important to note that out of the total disinvestment revenue of ~1.38 lakh crore, privatisation of these undertakings gave the gov-ernment less than five per cent, oronly about ~6,300 crore.

Every financial year invariablybegins with the setting of a target of revenue that the government hopesto garner through disinvestment.But the target has been missed in all

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The trouble with disinvestmeWhat should have primarily served as an instrument for improving PSU mathe years become a mere financial exercise to raise revenue to reduce the

RAISINA HILL

A K BHATTACHARYA