- Disinvestment Timeline in India
- Two methods of disinvestment
- Retail investors’ participation? Hardly!
- Disinvestment: arguments in favor and against
- Modi-Reform1: Disinvesting NHPC, Coal India, ONGC
- Modi Reform2: Revive 5 and shut down 6
- Mock Questions
Combining Disinvestment theory and current affairs topics scattered around
- Akshay Dhadda and Ashok Charan’s entries under the erstwhile write2win competition.
- Sept.Week2: Disinterment in NHPC, Coal India and ONGC
- Sept. Week3: Two Methods of disinvestment- benefits and limitations.
- Sept. Week4: Government to shut down 5 PSUs and revive 6.
Disinvestment Timeline in India
- Disinvestment: When Government sells its shares of a PSU, to private sector company / individual.
- Privatization: when Government sells so many shares, that it no longer remains the majority shareholder of the given PSU.
|1993||Rangarajan Committee suggests:
Government did not implement.
|1996||Disinvestment commission under GV Ramakrishna. It was a non-statutory, advisory body (similar to UPA’s NAC).|
|1998-2000||Vajpayee Government classifies PSUs into two parts
To implement above policy, Department of disinvestment setup under Finance ministry. (first there was disinvestment ministry, then department….not going into all ball by ball commentary)
|2004||UPA comes into power, Common Minimum program (CMP) updates disinvestment policy
|2005||Whatever Money Government earns from selling its PSU shares- it’ll goto National investment fund (NIF). Click me to read more about it.|
|2005-09||Disinvestment remains stagnant because Left allies of the UPA Government stonewall everything.|
|2013-14||Chindu wanted to earn 40,000 crores via disinvestment of Indian Oil, BHEL, NHPC, Neyveli lignite etc. but hardly managed to get ~16,000 crores. Main reasons for #EPICFAIL:
Two methods of disinvestment
|IIP||Via stock exchange|
|Via Institutional placement program. Directly selling the shares to another company / institution / mutual fund or other large player.||Directly selling shares on stock exchange|
|Requires more clearances.||
|Friendly to institutional investors (Mutual funds, pension /insurance funds etc.)||Friendly to retail investors.|
Retail investors’ participation? Hardly!
- So, In theory, disinvestment via stock exchange = retail investors should be able to purchase those sarkaari shares.
- But, after disinvestment, the market price and issue price of the company shares start converging.
- Therefore, a retail investor cannot reap the benefit (by selling it to third party at higher price). He’ll have to wait for medium to long term before company share prices begin to rise again.
- But retail investors don’t like to wait that long, hence disinvestment doesn’t generate interest of retail investors.
Solution: ETF exchange traded funds. Click me to learn more about it.
Disinvestment: arguments in favor and against
|The funds received from disinvestment are used to finance fiscal deficit. This is unhealthy practise, like selling family gold to buy daily dose of desi liquor.||Need amendments in FRBM act to ensure this doesn’t happen.|
|Disinvestment would lead to private monopolies||Dragging the logic too far. Unlikely to happen in today’s world. CCI is always watching and punishing the firms that try to create monopoly or oligopoly.|
|Allegations that PSEs are sold cheap to preferred parties e.g. BALCO||
||Need for a clear policy on disinvestment to stop this practice.|
Speed of Disinvestment
Should India adopt rapid pace of disinvestment/privatization or move with a slow pace? Taking example of disinvestment process of other countries:
|Middle speed||Most suitable for India|
Modi PSU-reform1: Disinvesting NHPC, Coal India, ONGC
|Coal India Ltd||coal||~90%||10%||
Note: in PSUs, Government owns the shares, in the name of President of India.
Modi PSU-reform2: Revive 5 and shut down 6
2014, Sep. week2: Union Government finished reviewing 11 PSUs: 5 worth savings and 6 worth closing.
|6 epicfails beyond saving||5 worth saving|
|These will be given 1000 crore rupees to give VRS to employees then shut down operations. Total employees ~3600|
October week2: HMT watches in news, because they’ve tied up with flipkart.com to sell away the remaining stock of wrist watches.
- Non-UPSC exams: Trivial fact based questions- In September 2014, Government approved closing down Which of the following companies? How many crores does Government want to make from disinvestment?
- CSAT: assertion-reasoning, cause consequences type. Which of the statements are correct about disinvestment process in India / NIF etc.
Mains: Answer following in 200 words each:
- Outline the main objectives and achievements of the policy of disinvestment in India? [Mains 2002]
- The Public sector undertakings have lost relevance in the post 1991 Indian economy. Do you agree? Justify your stand.
- Public sector undertakings in India, have often been criticized for their poor efficiency and low profitability. Examine the reasons and suggest remedies.
nice article sir
Thanks Mrunal. One more question can be added from mains perspective – “Is the restructuring of PSUs to make them more competitive a better strategy to enhance their relevance, rather than the tacit policy of privatizing them?”
Disinvestment methodology “institutional placement program” acronym should go as IPP instead of IIP. Heading has gone wrong at – https://mrunalmanage.wpcomstaging.com/2014/10/disinvestment-india-timeline-methods-pro-anti-arguments-modi-policy.html#221
1.Why after disinvestment market price and selling price starts converging?
2.How ETFs provide solution for this to retail investor? Why the same theory of price convergence does not applies on them?
Will be very greatfull if u clears these doubts.
Generally, by emotion in the market at first sight when a disinvestment happens; people(public, institutional investors) will be skeptical about the political-managerial environmental change happening in the company. It would take 1-3yrs to stabilise the stock price in the market to have a functioning company in its fullest sense. For eg: Say a news appears, Warren Buffet selling stock of Microsoft. The general reception would be; a well reputed investor is not seeing value in that company anymore and is worried about the internal situation in the board so further sell-off happens.
People(Aam Admi/Retail) invest their hard earned savings to beat the inflation and see good returns. For him/her 3 yrs is a high time.
Price Converging affects ETFs also. They are generally passive investment instruments. ETFs generally spend less on fund managing where as mutual funds spends a lot for a reputed fund managers to get good investments. Hence the return from Mutual Fund could be cut a “certain percentage” as “entry fee” and/or “exit fee or load”.
Please correct me where I am wrong.
If possible, Kindly create sub-heads for GS-I, II, III & IV under “Mains” head, so that all articles relating to these papers can be through sub-heads at one place,
bcoz it will be very convenient/time saving for us to navigate the website
Thank you Mrunal for mentioning my name.
@Mrunal : As “Fans of Mrunal” said -> please create sub heading in a new tab “Mains” and under that arrange these current affairs so that it will be useful for us to read and correlate . Thank you
Anyone please tell me if we applied for prelims but did not attend the exam will it count as an attempt?
sir i have a doubt. what is the difference between psu reserved for public sector and other psu?
this information is really useful..thanks !! especially the timeline of disinvestment till date is very informative
Sir, great job by you…. but one humble request… since u are asking questions from year book, kindly mention just the chapter and page no (if possible) in the answer.. so that it would be easy for us to clear our doubts by referring to relevant portion of YB…. the short ans you provide often seems inadequate.. Hope, this would not be difficult to do…
It’s a Great job:-)