The disinvestment process by the Indian government has been taken to sell assets to reduce risk regarding fiscal burden. The prime objective of the government is to increase the return on investment (ROI) regarding capital expenditure. In this discussion disinvestment policies of 1991is going to be separated to explain government advantages by this process. Discussion shows that transferring debts of under-performed government organizations has been for the public sectors is 49 percent of the shares to prevent a fiscal deficit.
Showcase of Disinvestment Policy in India
The government of India’s initiative about disinvestment applies to reduce capital expenditure to make financial advantages. Moreover, maximization of return of capital through diversifying risks to other investors provides a fiscal advantage. Disinvestment of government sectors raises wealth for the government and also encourages private players to participate which would boost the whole economy. Private Player’s participation is the wise move for long-term financial growth as well as government. The increasing financial burden of government organizations has become a barrier for the government to manage fiscal deficits. Private players’ participation in the market increases competition that provides higher employment as well as a sustainable market for consumers. Continuation of a business depends on development where the government faces problems due to continuous fiscal deficit but private players’ entry could mitigate fund-related issues. New fund generation through private players provides a better opportunity to meet required development. Continuous negative returns from public sector undertakings (PSUs) affect government capital employed that become liability more than assets. All PSUs sectors’ negative returns have an adverse effect on gross domestic production (GDP) and also reduce national reserve funds.
There are many controversies regarding the disinvestment process where the set initial price of PSUs sectors could be manipulated. Valuation of shares would be affected by holding 51 percent share by the government where the final decision of the government could defer from the rest of investors. Disinvestment is the resource raising process where loss making organizations could fail to affect mutual funds and investors, their government could fail to achieve expected return from disinvestment. On other hand, private players could create their monopoly in the market where less competition would fail to meet consumers’ needs.
The Portrayal of Disinvestment Policy in India 1991
The disinvestment policy in India was started two decades back where minority share-disinvestments of PSEs have been followed till now. In the fiscal year 1991- 1992, the Chandrashekar Government has proposed to disinvest up to 20 percent share in PSUs where mutual funds and institutional investors have taken that much equity. Through this equity management practice, the Chandrashekar Government has raised around 2500 cores to the exchequer in 1992. Through the Industrial Policy Statement of July 1991 government has stated about the disinvestment process where the government has not been there to add capital for disinvestment extension. The first chairman of the disinvestment board was GV Ramakrishna to recommend higher possibilities about advantages where the government could raise more capital for enhancing domestic production. An initiative of disinvestment was taken in 1991 for raising capital and it is also known as reformed industrial policy. Another motive behind disinvestment has been to save the national reserve funds to spend less on PSUs, whereas those funds could be utilized for welfare activity. Though disinvestment happened in 1991 consumers get better service due to competition and using extra resources for expansion helps to generate more employment.
Disinvestment Policy in India and Privatization
Public assets liquidation offers capital raising in those sectors that help the government to save the national reserve. Disinvestment is the process of money-raising where debts could not be raised. Gradually fall in return on capital of PSUs sectors infects the whole Indian economy where reducing government debt is the best policy to manage fiscal deficits. Disinvestment policies of PSUs help to diversify this fiscal deficit with mutual funds and institutional investors.
It could be concluded that disinvestment is a wise decision made by the government where the government needs to monitor private players’ internal activity. Regarding these disinvestment policies, the government sells stakes in loss-making companies where veteran investors are not attracted by those companies. In the current years, the finance ministry has reduced the target of disinvestment which shows this disinvestment activity is going as per their expectation. Moreover, mutual fund and institutional investors’ participation need to be analyzed for further disinvest, because they are the main private player in the market.