Dis Vestment

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    Disinvestment in Public Sector Enterprises

    Cdr Sangram Dey

    National Institute of Financial Management 1

    ABSTRACT

    The founding fathers of our republic used the publicenterprises as an essential and vibrant element in the building-

    up of Indias economy. One of the basic objectives of starting

    the public enterprises in India was to build infrastructure for

    economic development and rapid economic growth. Since their

    inception, public enterprises have played an important role in

    achieving the objective of economic growth with social justice.

    However, economic compulsions, viz., deterioration of balance

    of payment position and increasing fiscal deficit led to adoption

    of a new approach towards the public enterprises in 1991.Disinvestment of public enterprises is one of the policy

    measures adopted by the government of India for providing

    financial discipline and improve the performance of this

    enterprises in tune with the new economic policy of

    Liberalisation, Privatisation and Globalisation (LPG) through the

    1991 Industrial Policy Statement.

    During the year 1997-98, a major initiative has been

    taken to grant substantial autonomy full powers to incur capital

    expenditure, to nine selected public sector enterprises, called

    Navaratnas with the view to assisting them in becoming global

    giants. Later, two more enterprises were added to this list.

    Enhanced financial, managerial and operational autonomy was

    also granted to other profit-making enterprises called Mini-

    Ratnas numbering approximately 97. A Public Sector

    Disinvestment Commission has been constituted in 1996. The

    terms of reference of the Commission include inter-alia drawing

    up comprehensive overall long-term disinvestment program for

    the public enterprises, determining the extent of

    disinvestment, preferred mode of disinvestment etc.

    An overview of the objectives of the New Economic Policy

    clearly manifests that the disinvestment in public enterprises

    are a definite intervention measures to help achieve the

    broader macro objectives of Indian economy.

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    Disinvestment in Public Sector Enterprises

    Cdr Sangram Dey

    National Institute of Financial Management 2

    ABBREVIATIONS USED

    AYL Andrew Yule & Company Limited

    BALCO Bharat Aluminium Company LimitedBBUNL Bharat Bhari Udyog Nigam Limited

    BEML Bharat Earth Movers limited

    BEL Bharat Electronics Limited

    BHEL Bharat Heavy Electricals Limited

    BPCL Bharat Petroleum Corporation Limited

    BRPL Bongaingaon Refinery & Petrochemicals Limited

    CPCL Chennai Petroleum Corporation Limited

    CMC CMC Limited

    CONCOR Container Corporation of India Limited

    DCI/DCIL Dredging Corporation of India

    EIL Engineers India Limited

    FACT Fertilizers & Chemicals Travancore Limited

    GAIL GAIL (India) Limited

    GIC General Insurance Corporation of India

    HFCL Himachal Futuristic Communications Limited

    HLL Hindustan Lever Limited

    HOCL Hindustan Organic Chemicals Limted

    HPCL Hindustan Petroleum Corporation Limited

    HPF Hindustan Photo Films Manufacturing Corpn Limited

    HTL Hindustan Teleprinters Limited

    HZL Hindustan Zinc Limited

    HCI Hotel Corporation of India Limited

    IBP IBP Company Limited

    ICI ICI Limited

    ICICI ICICI Limited

    ITDC India Tourism & Development Corporation Limited

    IOC Indian Oil Corporation Limited

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    Disinvestment in Public Sector Enterprises

    Cdr Sangram Dey

    National Institute of Financial Management 3

    IPCL Indian Petro Chemicals Corporation Limited

    IDBI Industrial Development Bank of India Limited

    JCL Jessop & Company Limited

    KRL Kochi Refineries Limited

    KIOCL Kudremukh Iron Ore Company Limited

    LJMC Lagan Jute Machinery Company Limited

    LVPH Laxmi Vilas Palace Hotel

    LIC Life Insurance Corporation of India Limited

    MTNL Mahanagar Telephone Nigam Limited

    MUL Maruti Udyog Limited

    MMTC Mineral and Metals Trading Corporation of India Ltd

    MFIL Modern Food Industries (India) Limited

    NALCO National Aluminium Company Limited

    NFL National Fertilizers Limited

    NMDC National Mineral Development Corporation Limited

    NTC National Textile Corporation Limited

    NTPC National Thermal Power Corporation Limited

    NLC Neyveli Lignite Corporation Ltd

    ONGC Oil & Natural Gas Corporation Ltd

    PPL Paradeep Phosphates Limited

    RCF Rashtriya Chemicals & Fertilizers Limited

    RITES RITES Limited

    SCI Shipping Corporation of India Limited

    SBI State Bank of IndiaSTC State Trading Corporation of India Limited

    SAIL Steel Authority of India Limited

    SIIL Sterlite Industries (India) Limited

    SMC Suzuki Motor Corporation

    UTI Unit Trust of India Ltd

    VSNL Videsh Sanchar Nigam Limited

    ZMPPL Zuari Maroc Phosphates Private Limited

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    Disinvestment in Public Sector Enterprises

    Cdr Sangram Dey

    National Institute of Financial Management 4

    INTRODUCTION

    Overview of the Public Sector

    1.1 Public sector enterprises are companies

    established by the central government under

    the Companies Act or as statutory

    corporations under specific statues of

    parliament. Public Enterprises were established in the early

    1950s for rapid industrial and economic growth, to create

    necessary infrastructure, for employment generations, to

    promote balanced regional development and to assist the

    growth of other industries.

    1.2 There were five Public Enterprises owned by the Central

    Government at the beginning of the First Five Year Plan with a

    total investment of Rs.29 crore. By the end of the Seventh Plan

    in 1990, the number of Public Enterprises had increased to 244

    with a total investment of Rs.99,329 crore. Thereafter, though

    the capital invested increased to Rs.3,93,057 crore in 2005-06,

    the number of Public Enterprises declined to 239. In 2006-07,there were 247 Central Public Sector Enterprises in India, as

    compared to 236 in 1997-98.

    1.3 The public sector presence is predominant in public

    utilities and infrastructure. Railways, post & telegraph, ports,

    airports and power are dominated by Public Enterprises or

    department-owned enterprises. In the roads sector, while some

    roads are owned and maintained by the private sector, publicly

    owned and maintained roads dominate. Road freight capacity isalmost entirely private, while road passenger traffic capacity is

    also significantly privately owned and managed. In telecom, the

    public sector continues to be dominant in the provision of fixed

    line telephone services, while private licencees are operating in

    some urban areas. Mobile services are predominantly private,

    particularly in urban areas, while inter-state and international

    linking services are significantly privately managed and owned.

    1.4 In the tradable goods sector, the public sector is dominantin coal; oil and gas exploration, development, extraction and

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    Disinvestment in Public Sector Enterprises

    Cdr Sangram Dey

    National Institute of Financial Management 5

    transportation, though nearly one third of oil refining capacity

    is now owned by the private sector. The public sector is also a

    significant player in steel, fertilizer, aluminum and copper. In

    the engineering industry, the public sector has been losing

    market share except in electrical machinery, where BHEL is asignificant player. In construction and project services, the

    public sector is a minor player. The bulk of the remaining

    tradable sector is privately owned and managed.

    Performance Status

    1.5 The macro view of overall performance of these numbers

    of CPSEs in the last 10 years is tabulated be low:-

    Growth of Investment in CPSEs

    ParticularsTotal Investment

    (Rs in crore)No ofCPSEs

    On the eve of the 1st Five Year Plan (1.4.1951) 29 5

    On the eve of the 2nd Five Year Plan (1.4.1956) 81 21

    On the eve of the 3rd Five Year Plan (1.4.1961) 948 47

    At the end of 3rd Five Year Plan (31.3.1966) 2410 73

    On the eve of the 4th Five Year Plan (1.4.1969) 3897 84

    On the eve of the 5th Five Year Plan (1.4.1974) 6237 122

    At the end of 5th Five Year Plan (31.3.1979) 15534 169

    On the eve of the 6th Five Year Plan (1.4.1980) 18150 179

    On the eve of the 7th Five Year Plan (1.4.1985) 42673 215

    At the end of 7th Five Year Plan (31.3.1990) 99329 244

    On the eve of the 8th Five Year Plan (1.4.1992) 135445 246

    At the end of 8th Five Year Plan (31.3.1997) 213610 242

    At the end of 9th Five Year Plan (31.3.2002) 324614 240

    As on 31.3.2003 335647 240

    As on 31.3.2004 349994 242

    As on 31.3.2005 357939 237

    As on 31.3.2006 403705 239

    As on 31.3.2007 421089 247

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    Disinvestment in Public Sector Enterprises

    Cdr Sangram Dey

    National Institute of Financial Management 6

    1.6 The following observations are made regarding the

    performance of CPSEs during the last 10 years:-

    (a) The capital employed has increased from Rs.

    2,49,855 Crores in 1997-98 to Rs.6,65,124 Crores in2006-07 recording a growth of 266%.

    (b) Number of loss incurring CPSEs, it has come down