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  • Category: Miscellaneous

    Disinvestment and selling off a company is not the same thing.

    We must have heard of word 'Disinvestment' in news or newspaper and a lot of uproar over it too. The term 'Disinvestment' means to liquidate assets or reduce capital expenditure in order to make maximum utilisation of resources and improve return on investment.

    On the other hand selling off a company means to give up the equity or ownership to another person or company and completely cease to exist. Selling a company is done ether to earn a profit or to recover the money invested and the sale can be at loss too.

    There are huge uproar about disinvestment and news that Government is selling off the public companies and making them private. This way people will lose job and everything will become expensive and there will be no security of job for people working in public sector also.

    I think public sector job is also a job where one has to perform and earn his living. Public companies are not a place where you get a job and then you become lethargic and idler. But in general the work culture and productivity of PSUs where the capital investment is huge but the output or return on investment is negative figures the owner or Government with maximum stake has no option but to shed off the load and improve its productivity.

    For the same reason every year the Government has target of disinvestment that runs into trillions of rupees. Government companies are there to provide employment but at the same time they are also bound to earn and get return on the investment made and for that the human capital needs to perform to their best capacity, which is lacking. In th ener Government company also does business although the cost of goods or services is low but still the scale of economy can make up for the low cost. They also need to earn a percentage of profit to justify the investment.

    Any business which operates to earn profit will surely reduce its capital expenditure or sell of some of its assets which are not performing well to improve its return on investment. Anyways private business first start with reducing the human capital first and other assets later.

    What meaning members have about disinvestment?
  • #710779
    This is a big subject and different theories are there. The selling of a company means it need not be outrightly selling into another party. But the management will be transferred.
    For example in a PSU, the government is holding 51% and 49% is with the public as shares. Now the government wants to sell a part of its share to a private firm and the management will be transferred to them. Here the government need not sell all its share so that private person will run the management. It can sell 26% of the share and the remaining will be (25%) with the government only. But the private company will have a maximum percentage of share and it will manage the company. The people call it strategic selling. This strategic selling is a way of privatising PSUs.
    In the case of disinvestment also it is a sale but quantum should be less and the management will not change. Out of 51% the government is holding. it may decide to 10% to some other party so that they will get some money and that can be used for making the plant operational and profitable.

    always confident

  • #710780
    Disinvestment refers to Public sector enterprises wherein the govt has some stakes and it gets the dividend out of its rich investments. But when the PSU is not doing well and the results not forthcoming the govt would withdraw part of its share and that is called disinvestment and this happens even in private sector. Whereas the selling off the company refers to the situation where in operation and maintenance is no more possible and it is in the brink of closing the operations. In that case the sale would be announced on as where as basis including the debts of the company to be taken over. So these two terms are different and that should not be confused.
    K Mohan @ Moga
    'Idhuvum Kadandhu Pogum "
    Even this challenging situation would ease

  • #710796
    From time to time, the government keeps taking a decision to reduce its stake in PSUs. Often in the general budget, the government sets the target of disinvestment during the financial year. Disinvestment is indeed an important means of raising money for the government. By issuing an offer to sell its shares in the stock market, the government invites retail and institutional investors to invest in that PSU. Through this process of disinvestment, the government reduces its ownership in the related company (PSU) by selling its shares. This disinvestment process gives the government money to spend on other schemes. One of the objectives of the disinvestment process in a PSU is also better management of that company. In fact, public sector companies (PSU) companies do not work only keeping in mind the profit, so many times there is not much profit in their work. Disinvestment in a PSU can be done either by selling shares in a private company or their shares can be issued to common people for purchase. Many times people understand the meaning of disinvestment as the privatization of a government company, but it is not so.
    Swati Sharma

    Keep your Face to the SunShine

  • #710798
    First of all why do we need PSUs in the present environment? If we can buy defence jets like Rafael from a foreign private player like Dassault Aviation, why can't we buy the same thing from the private players in our own country. At the time of independence, there were very few private players or private industries and hence the Government had moral obligation to provide employment to its citizens. But the present situation is completely changed. Government can retain few strategic PSUs and can privatise all the PSUs. There is no need for the Government to slowly do the disinvestment and every time give a chance to the opposition. It can privatise all the PSUs at a time if some private players come forward.

    See the revolution in the banking and the telecom sector. The employees of Government Banks and BSNL used to feel like ministers and now we can see how they are slogging like private employees.

    For example, what is the use in keeping IOC, BPCL or HPCL as PSUs? Only influential people get the gas and petrol outlets (through some covert manner) and pressurise the government to increase their commission. Even though the government is not providing any subsidies, it uses its power to control the petroleum prices during the election time. Do, we really need such type of PSUs?

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