INVESTMENT AND DISINVESTMENT IN LAYMAN’S UNDERSTANDING - The Fearless Indian
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INVESTMENT AND DISINVESTMENT IN LAYMAN’S UNDERSTANDING

  • Fearless Indian
  • May 22, 2020
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Now a day’s much is talked about disinvestment or privatisation. There are different opinions on the subject. One section favours the investment other favours the disinvestment. This section involves political parties and the government to which parties belong to. To understand dis-investment we need to understand investment first. What is investment? How it is made? Why it is made?

Investment is an amount set aside from the income by way of deferring some of the expenses which are not urgent in nature and put it in a process either engaging it in business/lending to earn additional income by way of profit/interest/dividend, which enable us to use/spend/re-invest the same as and when needed generally in the odd days when we may either fall in short of income or our needs/expenditure might have increased.

This entire process of investment can be termed as “ATMANIRBHARTA” where we need not beg, borrow or steal from others to meet our own expenses.
Major Advantages of Investment:
1.Ownership is retained.
2.Income earned out of investment can be best used for meeting our needs.
3.Income earned can be reinvested to earn more income.
4.Investment generates employment.
5.We need not beg or borrow to meet our expenses.
6.Many social obligations can be met with investments.
7.Profits earned through investments are retained with the owner.

Major Disadvantages of Investment:
1.Limitations on expenditure
2.Postponement of necessary expenditure.
3.May incur loss whereby good money may turn into bad.
4.May result into low capacity utilisation, low efficiency, low work ethics.
5.Over capitalisation, lack of innovations, lack of timely decisions
6.No Risk-taking approach which may not yield profits/dividends/interest earnings.

Now coming to disinvestment:
What is disinvestment?
In simple terms disinvestment means sharing of our ownership either partially/fully in consideration of money.

Why disinvestment?

When our income falls short to meet our expenses, then to meet the difference between income and expenditure we have options like begging, borrowing or disposing our assets share either partially/fully which were created out from our investments. Disinvestment may also prove failure in administration and mismanagement of available resources.

One can view disinvestment and have different approach which can be classified into:
Minority Disinvestment: Allowing partial investment where majority ownership is retained, and only partial ownership is shared with others in consideration of funds.

Majority Disinvestment: Majority of ownership is shared with others in consideration of funds and only partial/minimum ownership share is retained.
Complete Privatisation: Entire ownership is shared with others in consideration of funds.
Major Advantages of disinvestment:
1.Funds are available for reinvestment which may earn additional income.
2.Timely Funds are available to meet necessary and genuine expenses.
3.Risks and losses are shared.
4.Outgoings are shared either partially/fully.
5.Limited infrastructure/management is required.
6.Loss making business can be disposed off to avoid spending of good money on such units.
7.Infrastructure development can take place.
8.Funds are available for paying Public Debts.
9.Funds are available to meet budgetary needs and gap the financial deficit.
Major disadvantages of disinvestment:
1.Ownership is either partially/fully lost.
2.Loss of income because of uncertainty/sharing of income.
3.Social obligations cannot be met.
4.There may be loss of jobs.
5.No control over management if ownership is fully handed over to others.
6.Opportunity of reinvestment is lost.
7.Chrony Capitalism would emerge.
8.Unfair labour practice may increase.
9.Non availability of assets/resources at the time of dire need.
10.Wealth would be accumulated at the hands of only few.
11.Income Disparity may increase in society.
In the First four decades after Independence we saw the path of progress through Public Sector Enterprises active participation in Economic development where we started from NIL. Because of certain shortcomings like low capacity utilisation, low efficiency, mismanagement, over capitalisation, lack of appropriate and timely decisions paved the way for disinvestment. Accordingly, in the year 1991-92 31 PSUs were disinvested and amount of Rs.3038 crores was collected. Slowly disinvestment was done during the tenure of all the Governments right from 1947. However, it is important to mention here that majority of the Governments added PSUs during their tenure but the Governments under the BJP/NDA rule failed to add PSUs and rather disinvested more and more PSUs which included profit making PSUs also.
The Present NDA Government under the leadership of Hon’ble PM Shri Narendra Modi did not add even a single PSU for the past six years. The present Government for the financial year 2019-20 had set a disinvestment target of Rs.1.05 lakh crore and have proceeded further where cabinet has cleared the plan to sell its share of 53.3% in BPCL, 63.8% of Shipping Corporation of India and 30.8% of CONCOR to Private buyers. 74.2% of Govt.’s stake with THDCIL and 100% NEEPCO are to be sold to NTPC.
What we observe is that sale of profit-making and dividend paying PSUs would result in the loss of regular income to the Government which is a sign of bankruptcy and administration failure of the Government. Arriving at such a situation that funds are used out of disinvestment to bridge the fiscal deficit is an unhealthy sign and short-term practice which is equivalent to selling our owned ornaments to meet short term monetary needs.
Total Receipts through Minority Shareholding, Majority Shareholding, Strategic Sales, from other related transactions and receipts from residual share holding works out to (amt.in crores) Rs.4,67,235.89.
Summary of disinvestment since 1991-92 to till date. (Dept of Investment and Public Asset Management, Government of India)

J S RAO
RETIRED BANK OFFICER

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