Privatisation and disinvestment

This presentation gives a basic view on the meaning of Privatisation and Disinvestment.

1. PRIVATIZATION AND DISINVESTMENT Submitted By – Pragati Mehndiratta

2. Business Environment Business environment is a combination of all factors that influence a business.

3. Introduction Before 1947, activities of public sector were restricted to a limited field like irrigation, power, railways, ports, communications and some departmental undertakings. After Independence, the area of activities of the public sector expanded at a very rapid speed . Industrial policy resolutions of 1948 & 1956 ensured that the activities of the private sector will not be curbed.

4. Introduction These polices divided the economy broadly into two. Some activities were left for public sector, some for both public and private sector, and some entirely for private sector.

5. Privatization Privatization means transfer of ownership and or management of enterprise from public sector to private sector. Privatization the transfer of ownership of State Owned Enterprises ( SoE ) to the private sector by sale (full or partial) of going concerns or by sale of assets after the liquidation of the company - World Bank

6. Privatization - History The seeds were laid in the UK in 1960s. First mentioned in 1960 in the book : The Age of Discontinuity by Peter Drucker . Spread in 1970 by the then PM Margaret Thatcher.

7. Privatization - Objectives To increase efficiency & competitive power of the enterprises. To strengthen industrial management. To earn more & more Foreign currency. To make optimum use of resources. To achieve rapid industrial development of the country.

8. Privatization - Advantages Reduction in economic burden Increase in efficiency Reduction in sense of irresponsibility Scientific Management Reduction in Political Interference

9. Privatization - Disadvantages Lack of social welfare Class struggle Increase in inequality Increase in unemployment Exploitation of weaker section

10. Disinvestment The action of an organisation or government selling or liquidating an asset or subsidiary

11. Disinvestment - Objectives To reduce the financial burden on government. To improve public finances To introduce, competition and market discipline To increase growth of the firm To encourage wider share of ownership

12. Disinvestment - History The Indian economy had virtually embraced bankruptcy during the period of 1980-92. In 1991, there was 236 operating public sector undertakings, of which only 123 were profit making. The top 20 profit making PSU’s were responsible for 80 percent of profits. The return on public sector investment for the year 1990-91 was just over 2 percent.

13. Disinvestment - Advantages In Private Sector, the decision making process is quick. Better corporate governance, exposure to competitive markets. Loss making PSUs can be revived which can boost up the economy.

14. Disinvestment - Disadvantages Selling of profit-making PSU results in loss of regular source of income to the government. Asset stripping by the strategic partner. Disposal of profit making PSUs.

15. Questions?