Impact Of Privatization In India

IMPACT OF DISINVESTMENT ON INDIAN CAPITAL MARKET

INTRODUCTION:

Disinvestment denotes to the action of an organization or the government in selling or liquidating an asset or subsidiary. In simple words, disinvestment is the withdrawal of capital from a country or corporation. Some of the salient features of disinvestment are:

• Disinvestment involves sale of only part of equity holdings held by the government to private investors.

• Disinvestment process leads only to dilution of ownership and not transfer of full ownership. While, privatization refers to the transfer of ownership from government to private investors.

• Disinvestment is called as ‘Partial Privatization’.

The public sector is at the crossroads. A sector, which was to achieve

• To improve public finances.

• To introduce, competition and market discipline.

• To find growth.

• To encourage wider share of ownership.

As part of the economic reforms, the public sector reforms are also initiated to improve their efficiency and productivity. In this direction disinvestments and privatization are gaining attention.

The new industrial policy provides that "In order to raise resources and encourage wide public participation, a part of the Government shareholding in the public sector, would be offered to mutual funds, financial institutes, and general public and employees".

The goals of disinvestments are clearly identified and classified into short term and long term. Disinvestment may be undertaken to reduce or mitigate fiscal deficit, bring about a measure of economic stabilization or to improve efficiency in public enterprises through structural adjustments. It is in this context the PSUs have been demanding that a part of the disinvestments proceeds should be allowed to be retained by PSUs in order to:

• Help them upgrades their technology to become competitive.

• Build competence and strengthen their R&D.

• Rationalize and retain their work

• Disinvestments would have a beneficial effect on the capital market, the increase in floating stock would give the market more depth and liquidity, give investors easier exit options, help in establishing more accurate benchmarks for valuation and pricing, and facilitate raising of funds by the privatized companies for their projects or expansion, in future.

• Opening up the public sector to appropriate private investment would increase economic activity and have an overall beneficial effect on the economy, employment and tax revenues in the medium to long term.

• In many areas, e.g., the telecom and civil aviation sector, the end of public sector monopoly arid privatisation has brought to consumers greater satisfaction by way of more choices as well as cheaper and better quality of products and services. With the quantitative restrictions removed and tariff levels revised owing to opening of world markets/WTO agreements, domestic industry has to compete with cheaper imported goods. In the bargain, the common man now has access to a whole range of cheap and quality goods. This would require Indian industries to become more competitive and such restructuring would be easier in a privatized