Premium Essay

Disinvestment

In: Business and Management

Submitted By bhairavi2588
Words 1137
Pages 5
tmentMBA Education & Careers

Eco Fundas for you

What is Disinvestment?
Quick Fact government also hands over management control to private parties, it is termed ‘privatisation’. Ever since India launched the New Economic Policy (NEP) in July 1991, disinvestment has been an important policy area. Also, in recent years the issue of disinvestment has come to the fore due to the large scale fiscal deficit that the government has been running up. While presenting this year’s Union Budget, Finance Minister P. Chidambaram proposed estimated divestment proceeds of 40,000 crore for 2013-14, even when the Economic Survey released a few days before the Budget, had suggested that the Government should try to raise at least 25,000 crore every year by divesting its stake in state-run companies to meet the burgeoning fiscal deficit. The Rangarajan Committee expressed the view that in the case of PSUs for which the first sale is yet to be made or where the track record is yet to be established, two methods are recommended: (a) the method of sale by fixing a predetermined share price, and (b) the method of sale through auction among a pre-determined clientele (by way of shortlisting through tenders) as two acceptable and transparent processes for divestiture. In addition, it also identified a third method of transfer of controlling interest in an enterprise to a specific firm or person. It noted that all these methods have their merits and demerits; provide better quality services; reduce political interference, and reduce wastage and optimise resources. In short, the champions of disinvestment believe that the basic difference lies in the management style of the public and private sectors. Once disinvestment happens, the problems could be tackled by the private sector.
28 September 2013

T

he sale of the government’s shareholding in Public

Sector Units (PSUs), to…...

Similar Documents

Premium Essay

Financial Markets

...financial assets. * Lower the costs of transaction and information. * Improve the efficiency of capital allocation through a competitive pricing mechanism * Disseminate information efficiently for enabling participants to develop an informed opinion about investment, disinvestment, reinvestment, or holding a particular financial asset. * Enable quick valuation of financial instruments_ both equity and debt. * Provide insurance against market risk or price risk through derivative trading and default risk through investment protection fund. * Enable wider participation by enhancing the width of the market by encouraging participation through networking institutions and associating individuals. * Provide operational efficiency through * Simplified transaction procedures * Lowering settlement timings , and * Lowering transaction costs. * Develop integration among * Real and financial sectors; * Equity and debt instruments; * Long-term and short term funds; * Long-term and short term interest costs; * Private and government sectors; and * Domestic and external funds; * Direct the flow of funds into efficient channels through investment, disinvestment and reinvestment. The capital market comprises the primary capital market and the secondary capital market. Primary capital Market This refers to the long-term flow of funds from the surplus sector to the government and corporate sector......

Words: 1560 - Pages: 7

Premium Essay

Ikea

...IKEA Task 1 Boru Zhao Examine approaches to strategy evaluation and selection P7 Analyse possible alternative strategies relating to substantive growth, limited growth, Market entry strategies, and disinvestment strategies IKEA has marketed its products well and has dealt with all the problems easily. But there have been some constraints that came in the way of IKEA and alternative strategies have to be developed for them. These strategies are as follows: Substantive growth: In any business strategy growth is the most important factor. To achieve substantive growth the firm needs to go through a lot of planning. Some of the key advantages of substantive growth are: • Exponential Growth: Once IKEA achieves substantive growth in their business then they can be confident that it will lead to more growth in the future. There is a tendency of the growth of wealth at an exponential rate and the company can use these funds for other project to generate gains in future. While an organization achieves substantial growth the main benefit is that it helps in investing them for future benefits and achieving potential wealth gains. This is always a welcome consideration. • Competition: Substantive growth of IKEA will help them to understand the strength of the competition and developing the business strategy accordingly. The faster a company achieves substantive growth the easier it is for them to beat the competition. The added......

Words: 2012 - Pages: 9

Premium Essay

Business Environment

...Disinvestment and Privatisation in India Assessment and Options1 R Nagaraj2,3 Ownership reform in public sector enterprises (PSEs) initiated since 1991 has as yet been quantitatively modest. It is perhaps too early to judge the effects of these initiatives on their financial performance. While the slow pace of the reform can be perceived as an opportunity, there is perhaps merit in carefully reviewing the policy in light of economic theory, and comparative experience. As the bulk of the public investments are in industries with economies of scale and scope (with externalities that in principle invite considerable regulation), this study suggests an alternative institutional arrangement for improving PSEs’ financial performance: mutual stock holding among complementary enterprises tied around a public sector bank to minimise problems of soft budget constraint, dysfunctional legislative and bureaucratic interference, and to encourage close interaction between banks and firms to promote long term economic development. Introduction: Employing about 19 million persons, public sector currently contributes about a quarter of India’s measured domestic output. Administrative departments (including defense) account for about 2/5th of it, the rest comes from a few departmental enterprises (like railways and postal services), and a large number of varied non-departmental enterprises producing a range of goods and services. These include, close to 250 public sector enterprises (PSEs)......

Words: 10771 - Pages: 44

Premium Essay

Marketing

...last year approved 51 percent FDI in multi-brand retail but had to put it on hold due to opposition from political parties, including UPA ally Trinamool Congress. Sharma also reiterated that foreign retailers planning to enter the multi-brand segment would have to invest a minimum of USD 100 million with 50 percent of it in rural areas. Related Stories • 49% FDI in civil aviation allowed; industry welcomes • Cabinet allows disinvestment in 4 PSUs; to raise Rs 15,000 crore • Broadcast sector reform: FDI upto 74% to be allowed • FDI in retail to boost mall space demand: Realtors • Govt permits foreign investment in power trading exchanges • Major decisions to dispel policy paralysis notion: India Inc • FDI decisions to boost growth, generate employment: PM • UK-India business body hails FDI move • FDI sensitive, but to India's benefit: UK Inc • Corporate America, media hail India's 'big bang' reforms • Corporate America, media hail India's 'big bang' reforms • Govt's big-ticket reforms: FDI in multi-brand retail, aviation; disinvestment allowed The Minister said the firms will also have to source 30 percent of their products from Micro and Small & Medium Enterprises where FDI is 51 percent and above. Under the norms, 50 percent of total investment will have to be invested in 'backend infrastructure' within three years of the induction of FDI. "As far as the urban areas are concerned, they will be allowed to open stores only in cities with a population......

Words: 707 - Pages: 3

Free Essay

Kelkar Committee's Report  Roadmap for Fiscal Consolidation

...Number (UID) system enabling all the functions, verifications and allotments in accordance  one single number. For Indirect Tax (such as Sales Tax, customs, duties etc.), the committee  primarily  recommends  speedy  implementation  of  Goods  and  Services  Tax  which  seems  unlikely in next budget session too.  The second aspect discussed in the report is associated with Disinvestment. Disinvestment  refers to the action of the government to sell off its stake or share it holds in a company to  increase liquidity or to generate funds to lower down fiscal deficit. The government aimed  to raise INR 300 Billion during the current fiscal year which seems unlikely due to present  market  conditions  and  market  prices  of  public  sector  undertakings  (PSUs).  The  committee  recommends  disinvestment  in  companies  such  as  Specified  Undertaking  of  UTI  (SUUTI),  Hindustan  Zinc  Limited  (HZL)  and  Bharat  Aluminium  Company  Ltd.  (BALCO)  as  such  companies  do  not  play  a  significant  role  in  boosting  government’s  revenues  and  are  very  much under private control. The report suggests two routes for government’s disinvestment  procedures.  First  is  the  Offer  for  Sale  where  the  sale  of  the  investment  of  government’s  stake is open to public for a day. The stake can be picked up using call option model where  investors desirous of purchasing these securities may pay a small premium on the date of ......

Words: 1807 - Pages: 8

Premium Essay

Wal-Mart Failure in German

...to ‘US style’ lean retailing: the case of Wal-Mart’s failure in Germany Susan Christophersonà Abstract Wal-Mart’s exit from the German market in 2006 after 10 years of attempting to achieve sustainable competitive advantage contributes an interesting case to the small but expanding literature on ‘failure’ in international investment. The work on the disinvest decision in all its forms has been critical to a re-conceptualization of the international investment process as dynamic rather than static, linear and inexorable. An important segment of the work on investment and disinvestment as dynamic processes focuses on the environment in which investment and disinvestment decisions evolve. While the environment of the host country market has begun to be examined, the market environment of the country in which the retail transnational corporation (TNC) originates also affects the international disinvestment process. To explore this ‘home country effect’, I examine the resources Wal-Mart brought into the German market and their ability to use those resources in the German context. WalMart’s resources were shaped by the market governance regime in which the firm evolved, and not insignificantly, over which it had and has influence. Within this theoretical frame, Wal-Mart’s reliance on the resources of network dominance and autonomous action that made for its success in the USA contributed to unsuccessful strategies in the German retailing market. Keywords: lean retailing,......

Words: 10244 - Pages: 41

Premium Essay

Advanced Financial Management

...customers Disinvestment Disinvestment is a process in which the holding concern reduces its proportion of equity by disposing its securities. Disinvestment as per SEBI ( Substantial Acquisition of Shares ) Guidelines means the sale by the Central / State Govt. of its shares/voting rights/ control in a PSE. Privatisation means giving the entire control over the PSE to a private enterprise. In disinvestment the Govt. may retain partial control. Disinvestment reduces Govt. participation in the company. Approaches to disinvestment I. Govt. sells its equity holdings in PSE’s to public or private parties , financial institutions and mutual funds. II. PSEs are directed by the Govt. to issue their equity shares to public or private parties , financiqal institutions and mutual funds with a view to reducing its control. Objectives of disinvestment 1. To increase revenue collection for bringing down fiscal deficit 2. To improve efficiency of PSEs 3. To bring about market discipline, competitiveness and emphasis on maximization of profit and shareholders wealth 4. To mobilize resources and make available such funds as loans to PSEs 5. To enable direct participation of public 6. To encourage employee participation and motivation 7. To bring more autonomy in management of PSEs by reducing bureaucratic control. Disinvestment process Disinvestment Commission has been set up to work out the modalities and terms and conditions for disinvestment.The......

Words: 7835 - Pages: 32

Premium Essay

Disinvestment in India

...Disinvestment of India’s Public Sector Units L M Bhole, Department of Humanities & Social Sciences The role of the State vs. Market has been one of the major issues in development economics and policy. In a mixed economy such as India, historically the public sector had been assigned an important role. However, in the year 1991 the national economic policy underwent a radical transformation. The new policy of liberalization, privatization and globalization de-emphasized the role of the public sector in the nation’s economy. The faculty at IIT-Bombay has been studying various aspects of the New Economic Policy such as financial sector reforms, fiscal implications of reforms, and of globalization. To date several arguments have been proffered by the apologists of market-oriented economic structures: ▪ the government must not enter into those areas where the private sector can perform better ▪ market-driven economies are more efficient than the state-planned economies ▪ the role of the state should be as a regulator and not as the producer ▪ government resources locked in commercial activities should be released for their deployment in social activities. It is also contended that the functioning of many public sector units (PSUs) has been characterized by low productivity, unsatisfactory quality of goods, excessive manpower utilization, inadequate human resource development and low rate of return on capital. For instance, between 1980 and 2002, the......

Words: 2230 - Pages: 9

Premium Essay

Term

...in Financial Instruments The Indian capital market has witnessed innovations in the introduction of financial instruments. This has further extended the role of merchant bankers as market makers for these instruments. 6) Corporate Restructuring Due to liberalization and globalization, competition in the corporate sector is becoming intense. To survive and thrive, companies need new strategies, structures and methods of functioning. This has led to corporate restructuring including mergers, acquisitions, etc. These developments offer a good opportunity to merchant bankers to extend their area of operations. 7) Disinvestment The government of India has raised Rs. 2000 crores through disinvestment of equity shares of selected pubic sector undertakings in 93-94. Merchant Bankers can help in the disinvestment process....

Words: 1708 - Pages: 7

Premium Essay

Fiscal Deficit

...related to the process of | |liberalization since the rate of interest has to be kept high in a liberalized economy to prevent capital outflow.  Moreover, a | |growing domestic debt is not a problem for a government in the same way in which growing debt is a problem for a family since | |the government can always raise its receipts through taxation and by printing money. Some would say that printing money would | |lead to inflation, but as we have shown above, this is not necessarily the case. | |  | |Is it a Good Idea to Reduce Fiscal Deficits Through Disinvestment? | |No. The PSUs that the government has been disinvesting in are the profit making ones. Thus, while the government earns a | |lump-sum amount in one year, it loses the profits that the PSU would have contributed to the exchequer in the future. Therefore,| |it is not a good idea even if the objective is to reduce the fiscal deficit. | |  | |Does increased government expenditure necessarily lead to a greater fiscal deficit? | |Not necessarily.......

Words: 1015 - Pages: 5

Premium Essay

Reasons for Disinvestment

...Reasons for disinvestments: Financial Reasons 1. Cash related – a. Need for cash - for better reinvestment opportunities b. Voluntary liquidation to avoiding any substantial investments need to run the business on a profitable and sustainable business 2. Performance related – c. Unsatisfactory profit level on assets being divested d. Selling off assets and fringe activities to focus efforts on core competencies e. Rationalization of resources to achieve cost reductions and avoid duplication or uneconomic scale of operations f. Project nearing end of profitable life g. Corporate sales and profit growth objectives not met h. PV of cash flows for disinvestment than PV of cash flows from retention or expansion of business 3. Financial Environment i. Increasing interest rates pushing up financing costs eg Air India j. Increasing rate of inflation which cannot be compensated for by price increases Non Financial Reasons 1. Market Related a. Declining industry with permanent reduction in customer demand to an inadequate level b. Market share continuously declining, inability to penetrate new markets c. Business location badly situated in relation to markets and distribution means d. Risk and uncertainties related to business growing e. Competition increase to severe level 2. Management Related a. Inadequate management knowledge b. Lack of any specific......

Words: 352 - Pages: 2

Premium Essay

Business Strategy

...strong distributor and supplier network. 2. Engaging business partners by entering into license agreement. 3. Opening franchises in the new market segments can give exposure to rapid market expansion. 4. Going for joint venture partnership to share losses and profits equally. 5. Arranging for business units mergers with partners who have large market share and growth in the new segments. (Kim, 1996) * Disinvestment Strategies- In this strategically approach the organizations sells or liquidates its assets or subsidiary as a critical decision with an intention to attract higher returns on investments. The organizations replace their certain capital goods with investment decisions on more profitable assets. Objectives of disinvestment that can be important for Vodafone are: * Improvements in the price policy * Better utilization of capacities * Better planning and scheduling of operational functions * Better management of personnel * Better use of decision making powers (Z.Brooke,1996) Importances of disinvestment strategy for Vodafone are: * Arranging for better financial management to meet the fiscal deficit * Making scope for lager infrastructure development plans * Better scope of expansion * Introducing competition and market growth * Encouraging wider ownership share in the management * Reducing unfair means and practices in the operations(Kenny,2009) Turn around Strategy- It is the......

Words: 2684 - Pages: 11

Premium Essay

Cornell

...loans granted by the Centre to state governments and Union Territories. Capital expenditure: Capital expenditure or payments comprise: expenditure on acquisition of assets like land, building and machinery, investments in shares, loans and advances granted by the Centre to State and Union Territory governments, government companies, corporations and other parties. Capital receipt: Loans raised by the Centre from the market, government borrowings from the RBI & other parties, sale of Treasury Bills and loans received from foreign governments all form a part of capital receipt. Other items that also fall under this category include recovery of loans granted by the Centre to state governments & Union Territories and proceeds from disinvestments of government's stake in public sector undertakings. CENVAT: Central Value Added Tax (CENVAT) is an excise duty levied on manufacturers. It was introduced in the Budget 2000-01, with a single rate of 16 per cent across the board with special excise duty (SED) on various goods. It is designed to reduce the cascading effect of indirect taxes on final products. As a scheme, CENVAT is more liberal and extensive than the erstwhile MODVAT, with most goods being brought within its ambit and no declarations or statutory records needed. Central plan: It refers to the government's budgetary support to the plan and, the internal and extra budgetary resources raised by the public sector undertakings. Consolidated fund: This is one big......

Words: 1757 - Pages: 8

Premium Essay

Privatization in Bd

...that privatization brings more transparent accounting and improved economic performance and facilitates development goals such as increased investment, GDP, productivity and employment. The central theme of this paper is to examine the implications of privatization for the overall development of Bangladesh. What is meant by privatization? What are the approaches of privatization? Is privatization conducive for development of a country? What are Bangladesh’s strategies for development through privatization? Are these policies effective? These are a few issues that are addressed in the present chapter. 2. Understanding Privatization 2.1. Definition of Privatization Certain terms such as privatization, denationalization and disinvestment are, on many occasions, used synonymously. Privatization is the transfer of ownership from the public sector (government) to the private sector (business). A transfer in the opposite direction could be referred to the nationalization or municipalization of some property or responsibility.[i] The term privatization is also sometimes used to refer to government subcontracting a service or function to a private firm. It has also been used to describe an unrelated, nongovernmental interaction involving the buyout, by the majority owner, of all shares of a holding company's stock- privatizing a publicly traded stock. 2.2. The Theory of Privatization Public enterprises around the world have proved to be highly inefficient,......

Words: 6024 - Pages: 25

Premium Essay

Disinvestment of Bhel

...DISINVESTMENT OF BHEL LTD INTRODUCTION:- Bharat heavy electrical limited is an integrated power plant equipment manufacturer and one of the largest engineering and manufacturing companies in india in relation to turnover. It was established in 1964. The company has been earning profits continuously since 1971-72 and paying dividends since 1976-77. Its related to design, engineering, manufacture,construction,testing,commissioning and servicing a variety of products and services for the main sectors of the economy mainly Power, Transmission,Industry, Transportation(Railway), renewable energy, Oil and Gas and Defence. It has 15 manufacturing divisions and more than 150 project sites across india. It contributes 59% in india’s total installed generating capacity. It has its branches in over 75 countries globally. DISINVESTMENT OF BHEL LTD:- * The government holds 67.72% holdings in BHEL Ltd. * The annual turnover target of the Ministry Of Disinvestment for the current financial year from disinvestment is around 40000 crores. * So the government has decided to sell 5% of its stake holdings to the public, which is expected to generate a revenue of about 4500 crores. * But the disinvestment has been currently put on hold due to the present market conditions. * The government wants to provide financial support and want to improve the efficiency of the enterprise. The company had some debts which is showed in the balance sheet. So in order to minimize those...

Words: 592 - Pages: 3