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Disinvestment: Caution must

While the disinvestment process has been smooth in some cases, caution is required for others.

books Updated: Mar 15, 2004 10:33 IST

Disinvestmentin India
Policies, Procedures, Practices
Sudhir Naib

Sage Publications India
2004
Finance
Pages: 478
Price: Rs 700
ISBN: 0-7619-9825-x
Hardcover

While affirming that disinvestment of a huge enterprise like BALCO and other smaller public sector undertakings have been smooth and free of labour unrest., a study has called for caution in undertaking restructuring of enterprises with large work force besides clear cut objectives of disvestment policy in India.

Stating that the objective of the Indian disinvestments programme are not clear,the book titled Disinvestment in India: Policies, Procedures and Practices, says based on budget statements and industrial policy statement, one may infer that broadly the objectives sought to be achieved are fiscal and efficiency.

The book warns that large scale restructuring of enterprises with large work force can lead to emergence of a labour problem similar to the one taking place in China, "where excess workers have been laid off without their finding alternate employment".

It says although encouraging wider public participation in the disinvestments programme was initially an objective, the same was dropped later and only the strategic sale route was being followed.

While the government could only achieve a limited success as regards the fiscal objective of disinvestments, in so far as the efficiency objective was concerned,, it was found that in partly disinvested enterprises with no change in ownership, there was no improvement in performance, says the book.

However, in privatised enterprises, although results are available for a short-period, improvement was noticed in Modern Food Industries Ltd and Bharat Aluminium Company Ltd.

The book says strategic sales with transfer of management control to strategic partners has resulted in general buoyancy in capital market as there is a general feeling among institutional investors and others that financial returns will now be higher.

Stating that BALCO was a test case of privatisation of an enterprise which had a large work force, the book says this coupled with no labour opposition in subsequent strategic sales like those of CMC, HTL, IBP, VSNL, Paradeep Phosphates, Hindustan Zinc, Maruti and IPCL, where the manpower was mode rate, has given a boost to disinvestment process in India.

With privatisation, employees will now be more accountable and this is likely to improve productivity and profitability, it says adding incentives have also been improved for workers to a considerable extent.

The privatisation of PSUs has relaxed investment constraints with the new management investing much-needed funds for bringing new technology in the old plants, says the book.

For imparting greater efficiency, the author says Public Sector Enterprises should be taken out of the purview of Article 12 of the constitution as they are subject to too many scrutinies and answerable to number of committees.

This has not only resulted in PSEs taking recourse to risk averse approach but has led to loss of management's productive time in non-commericial activities, says the book.

Naib says the PSEs should be allowed to take all corporate decisions and operate as board managed companies besides being given full powers to enter into joint ventures,

The author says autonomy is required to implement mergers and acquisitions, exit from non-core areas, close unavailable assets and reduce manpower.

The book recalls that there are theoretical arguments favouring both the public and the private forms of ownership.

The difference between public and private enterprises starts with the very objectives of the owners in the two cases, says the book adding that in private ownership it is generally assumed that the motive of the owners is profit maximisation whereas in public ownership, the assumption is that the objective is to maximise social welfare.

"This public interest theory of state-owned enterprise suggests that where private ownership is efficient (ie in competitive markets with no externalities), public ownership would do equally well and in case of market failure, public enterprises can do better by correcting the misalignment of the public with the private objectives", it says.

The book professes that the political attractiveness of State Owned Enterprises reforms depends on its political costs and benefits.

It says in a typical case, the political costs must be borne up-front in the form of antagonising labour unions, managers, suppliers and other powerful beneficiaries of state ownership though in return, some political benefits may flow immediately.

First Published: Mar 14, 2004 10:00 IST