1. 3 ORGANISATIONAL STRUCTURE

The organisational set up of the Ministry is as depicted below :  

MINISTRY OF DISINVESTMENT  

OGANOGRAM  

 

 

1. 4      The Secretary (Disinvestment) is also assisted by the Joint Secretaries of the Administrative Ministries/Departments managing the PSUs under disinvestment in their respective Ministries/Departments. The Joint Secretaries concerned in the administrative Ministries are responsible to Secretary (Disinvestment) for disinvestment work.

1.5       All the disinvestment work of the Ministry is handled at Officers’ level with minimal supporting staff.

CHAPTER - II

EVOLUTION OF DISINVESTMENT POLICY IN INDIA

2. 1 PHASE - I

Initial Stages

The policy of the Government on disinvestment has evolved over a period and it can be briefly stated in the form of following policy statements made in the chronological order:

A. Interim Budget 1991-92 

Policy   : To divest up to 20% of the Government equity in selected PSEs in favour of public sector institutional investors.

Objective: To broad-base equity, improve management, enhance availability of resources for these PSEs and yield resources for the exchequer.

B. Industrial Policy Statement of 24^th July, 1991

Policy: To divest part Government holdings in selected PSUs

Objective: "to provide further market discipline to the performance of public enterprises"

C. Budget Speech :1991-92 

Policy: To offer up to 20% of Govt. equity in selected PSUs to mutual funds and investment institutions in the public sector, as also to workers in these firms.

Objectives: "to raise resources, encourage wider public participation and promote greater accountability".

D. Report of the Committee on the Disinvestment of Shares in PSEs (Rangarajan Committee): April 1993

"… emphasized the need for substantial disinvestment, and stated that while the percentage of equity to be divested should be no more than 49% for industries explicitly reserved for the public sector, it should be either 74% or 100% for others."

E. The Common Minimum Programme of the United Front Govt.: 1996

Policy:

         · To set up a Disinvestment Commission for advising

         · To take and implement decisions to disinvest in a transparent manner

         · Job security, opportunities for retraining and redeployment to be assured.

F. Disinvestment Commission Recommendations: Feb.1997- Oct. 1999

(i) 72 PSEs were referred to the Disinvestment Commission during 1996-99 The Disinvestment Commission gave its recommendations on 58 PSEs.

(ii) The Disinvestment Commission recommendations gave priority to strategic/trade sales, with transfer of management, instead of public offerings, as was recommended by the Rangarajan Committee in 1993 also.

The following table gives the details:

2. 2 PHASE - II

A. Budget Speech: 1998-99

Policy:

· To retain majority holding in PSEs involving Strategic considerations.

· To protect the interest of workers in all cases.

B. Budget speech: 1999-2000

Policy:

            ·  To privatise non-strategic PSUs through gradual disinvestment or strategic sale

            · To devise viable rehabilitation strategies for weak units

Approval of Clear Guidelines for Strategic / Non strategic Classification by the Cabinet on 16^th March 1999.

Strategic & Non-strategic Classification

Cabinet classified the PSUs into strategic and non-strategic areas.

Strategic PSUs:

      ·    Atomic energy related, with some exceptions

      ·    Railway transport

Non-strategic PSUs:

Non-strategic Public Sector Undertakings

Reduction of Government stake to 26% to be worked out on a case to case basis, on the following considerations:

b    Whether the Industrial sector requires a proper regulatory mechanism to protect the consumer interests before Public Sector Enterprises are privatised.

C. Budget speech: 2000 – 2001

Policy: The main elements:

 To restructure and revive potentially viable PSUs

     ·     To bring down Government equity in all non-strategic PSUs to 26% or lower, if necessary

     ·     To fully protect the interest of workers

     ·     To put in place mechanisms to raise resources from the market against the security of PSUs’          assets for providing an adequate safety-net to workers and employees

     ·     To establish a systematic policy approach to disinvestment and privatisation and to give a fresh impetus to this programme, by setting up a new Department of Disinvestment

     ·     To emphasize increasingly on strategic sales of identified PSUs

     ·     To use the entire receipt from disinvestment and privatisation for meeting expenditure in social sectors, restructuring of PSUs and retiring public debt

D. Budget Speech: 2001 - 2002

Objectives

To use the proceeds for providing –

  ·            Safety net to workers

  ·            Reduction of debt burden

  ·           Additional budgetary support for the Plan, primarily in the social and infrastructure sectors (contingent upon realization of the anticipated receipt.)

E.  New Disinvestment Commission

·        As the term of the first Disinvestment Commission expired in the year 1999, a new Disinvestment Commission has been constituted in the month of July 2001. The Composition of the Disinvestment Commission is as under:

1. Dr. R.H. Patil                     -          Chairman

2. Shri N.V. Iyer                     -          Member

3. Shri T.L. Shankar  -           Member

4. Dr. V.V. Desai                   -           Member

5. Prof. K.S.R. Murthy           -           Member

6. A. Bhattacharya                -           Member (Secretary) ( w.e.f. April 2002)

·        Terms of Reference

The terms of reference are as follows:

(i) It shall be an advisory body and its role and function would be to advise the Government on Disinvestment in those public sector units that are referred to it by the Government.

(ii) It shall also advise the Government on any other matter relating to disinvestment as may specifically be referred to it by the Government, and also carry out any such other activities relating to disinvestment as may be assigned to it by the Government.

(iii) In making its recommendations, it will also take into consideration the interest of workers, employees and other stakeholders, in the public sector unit(s).

(iv) The final decision on the recommendations of the Disinvestment Commission will vest with the Government.

·        Reference of all Non-Strategic PSEs including their subsidiaries to Disinvestment Commission

·        The Government has decided to refer to the Disinvestment Commission "non-strategic" Public Sector Enterprises (PSEs) including their subsidiaries, excluding IOC, ONGC & GAIL. Since such PSEs would be quite large in number, the Commission would prioritise the cases and make recommendations to the Government.

·        The Disinvestment Commission has, so far, given its recommendations on

                        1.  Neyveli Lignite Corporation Ltd. (NCL),

                        2. Manganese Ore (India) Ltd. (MOIL),

                        3. Rail India Technical & Economic Services Ltd. (RITES),

                        4. Projects & Equipment Corporation Ltd. (PEC).

                        5. Central Inland Water Transport Corporation Ltd. (CIWTC)

                        6. Cochin Shipyard Ltd. (CSL)

                        7. Dredging Corporation of India Ltd. (DCI)

                        8. Hindustan Shipyard Ltd. (HSL)

                        9. IRCON International Ltd. (IRCON)

                        10. National Projects Construction Corporation Ltd. (NPCC)

                        11. Semiconductor Complex Ltd. (SCL)

                        12. Telecommunications Consultants India Ltd. (TCIL)

                        13. Cotton Corporation of India Ltd. (CCI)

                        14.  Indian Medicines Pharmaceuticals Ltd. (IMPCL)

                        15. Jute Corporation of India Ltd. (JCI)

                        16. National Buildings Construction Corporation Ltd. (NBCC)

·        Out of these cases, Government has already taken decision to disinvest 51% of shares in MOIL. Other cases are under consideration.

F. Participation of PSUs in disinvestment (Present Policy)

·        Cabinet decided in September,2002 that Central Public Sector Undertakings (PSUs), Central Government owned cooperative societies (where Government’s ownership is 51% or more) should not be permitted to participate in the disinvestment of other PSUs as bidder.  If in some specific cases any deviation from these restrictions is considered desirable in public interest, the ministry/ Department concerned may bring an appropriate proposal for consideration of the Core Group of Secretaries on Disinvestment. Recently, Cabinet decided in December, 2002 that Multi State Cooperative Societies under the Department of Fertilizers be allowed to participate in the disinvestment of fertilizer PSUs including National Fertilizers Limited (NFL).

G.  Review of policy and new directions as indicated in a Suo – Moto Statement of Shri Arun Shourie, Minister of Disinvestment, Minister of Development of North Eastern Region and Minister  of Commerce & Industry made in both Houses of Parliament on 9^th December, 2002

Ø      The main objective of disinvestment is to put national resources and assets to optimal use and in particular to unleash the productive potential inherent in our public sector enterprises.  The policy of disinvestment specifically aims at:

·                                                        Modernization and upgradation of Public Sector Enterprises;

·                                                        Creation of new assets;

·                                                        Generating of employment; and

·                                                        Retiring of public debt.

Ø       Government would continue to ensure that disinvestment does not result in alienation of national assets, which, through the process of disinvestment, remain where they are.  It will also ensure that disinvestment does not result in private monopolies.

  Ø         In order to provide complete visibility to the Government’s continued commitment of utilisation of disinvestment proceeds for social and infrastructure sectors, the Government would set up a Disinvestment Proceeds Fund.  This Fund will be used for financing fresh employment opportunities and investment, and for retirement of public debt.

  Ø      For the disinvestment of natural asset companies, the Ministry of  Finance and the Ministry of Disinvestment will work out guidelines.

  Ø      The Ministry of Finance will also prepare for consideration of the Cabinet Committee on Disinvestment a paper on the feasibility and modalities of setting up an Asset Management Company to hold, manage and dispose the residual holding of the Government in the companies in which Government equity has been disinvested to a strategic partner.

CHAPTER - III

 PROCEDURE FOR DISINVESTMENT:

3 1       The apex decision-making body on disinvestment matters is the Cabinet Committee on Disinvestment headed by the Prime Minister. A Core Group of Secretaries on Disinvestment headed by the Cabinet Secretary deliberates on various aspects of the disinvestment program in the following manner.

3.2       On the recommendations of the Disinvestment Commission or of the other expert bodies, or on the basis of decisions taken in consultation with the administrative Ministry, the Ministry of Disinvestment initiates proposals and places them for the consideration of the Core Group of Secretaries on Disinvestment.

3.3       The decisions taken by the Core Group, in the form of recommendations, are then submitted for the consideration of the Cabinet Committee on Disinvestment and a final decision is obtained.

Procedure for disinvestment

3.4       The procedure followed by Government of India for disinvestment seeks to promote administrative simplicity and speed of decision-making without compromising on transparency and fair play. The process is as follows:

·        Proposals for disinvestments in any PSU, based on the recommendations of the Disinvestment Commission or in accordance with the declared Disinvestment Policy of the Government, are placed for consideration of the Cabinet Committee on Disinvestment (CCD).

·        After CCD clears the disinvestment proposal, selection of the Advisor is done through a competitive bidding process.

·        After receipt of the Expression of Interest (EOI), in pursuance of Advertisement in newspapers / website, advisors are selected based on objective screening in the light of announced criteria / requirements.

·        Bidders are invited through advertisement in newspapers / website to submit their Expression of Interest. On receiving EOI from bidders, the advisors, after due diligence of the PSU, prepare the information memorandum in consultation with the concerned PSU.  This is given to the short listed prospective bidders who have entered into a confidentiality agreement. The list of bidders is prepared after scrutiny of EOIs and those are shortlisted, who meet the prescribed qualification criteria.

·        The draft share purchase agreement and the shareholder agreement are also prepared by the Advisor with the help of the legal Advisors, and the final draft is prepared after detailed consultation with the bidders, in consultation with the Inter-Ministerial Group (IMG).

·        The prospective bidders undertake due diligence of the PSU and hold discussions with the Advisor/ the Government/ the representatives of the PSU for any clarifications.

·        Concurrently, the task of valuation of the PSU is undertaken in accordance   with the standard national and international practices.

·        Based on the feedback received from the prospective bidders, the Share Purchase Agreement (SPA) and Shareholders Agreement (SHA) are finalised by IMG. After getting them vetted by the Ministry of Law, they are approved by the Government (CCD). Thereafter, they are sent to the prospective bidders for inviting their final binding financial bids.

·        The material for finalising upset price is taken from the advisors after receipt of financial bids. The bids are not opened at this stage and are sealed after receipt, in presence of bidders. ‘Upset price’ determination exercise is thereafter completed by inter-ministerial ‘Evaluation Committee’ and the IMG. The sealed bids are then opened by IMG, in presence of bidders and compared with ‘Upset Price.’

·        After examination, analysis and evaluation, the recommendations of the Inter Ministerial Group (IMG) are placed before the Core Group of Secretaries on Disinvestment (CGD), whose recommendations are placed before the Cabinet Committee on Disinvestment (CCD) for a final decision regarding selection of the strategic partner, signing of the Share Purchase Agreement and Shareholders Agreement, and other related issues.

·        In case the disinvested PSU's shares are listed on the Stock Exchange, an open offer would be required to be made by the bidder before closing the transaction, as per SEBI guidelines: Takeover Code.

·        In the disinvestment process mentioned above, Ministry of Disinvestment is assisted at each stage by an IMG, headed by Secretary (Disinvestment) and comprising officers from the Ministry of Finance,             Department Of Public Enterprises, the Administrative Ministry / Department controlling the PSU, Department of Company Affairs, Department of Legal Affairs, CMD / Director (Finance) of the company being disinvested, and the Advisors and the Legal Advisors.

3.5       After the transaction is completed, all papers and documents relating to it are turned over the CAG of India; the CAG prepares an evaluation for sending to Parliament and releasing to the public.

3.6. Website of Ministry of Disinvestment

 A website for the Ministry has been launched with the objective of making available all the information to the general public. It includes the recommendations of the Disinvestment Commission and other relevant information of public interest including all advertisements and invitations of bids. The Ministry’s website address is www.divest.nic.in.

3.7       The process flow chart shows the various stages of a typical privatisation transaction through strategic sale route.  

                  Process   Flow Chart

CHAPTER - IV

LABOUR RELATED ISSUES IN PSUs UNDER DISINVESTMENT:

4.1.      A Cell has been created in the Ministry to look into the labour related issues and will act as a focal point for the Public Sector Undertakings slated for disinvestment. Minister and the Secretary of MODI meet the representatives of the workers’ Unions of the PSUs where disinvestment process is underway and explains the policy of the Government in this regard and solicits their cooperation, whenever needed. Similarly, the administrative Ministries and the management of the companies discuss labour-related issues with the trade-union representatives and other leaders to clarify the Government’s position and allay misgivings, if any.

4.2.      Protection of Employees interest forms an integral part of the disinvestment Process.  The Government is committed to protect the interests of all the workers, including those belonging to the Scheduled Castes and Scheduled Tribes. Transaction Agreements entered into by the Government with the Strategic Partner (SP), at the time of strategic sale, state that the SP recognizes that the Government follows certain employment principles for the benefit of the members of the Scheduled Caste/Scheduled Tribes, physically handicapped persons and other socially disadvantaged sections of the society and that the strategic partner shall use its best efforts to cause the Company to provide adequate job opportunities for such persons.  Further, in the event of any reduction in the strength of the employees of the Company, the SP shall use its best efforts to ensure that the physically handicapped persons, Scheduled Castes / Scheduled Tribes are retrenched  at  the  end.  A specimen copy of the typical provisions related to employees’ interest incorporated in the Shareholders Agreement is given below:

Recitals:

·     Subject to the substantives clauses in this regard, the Parties envision that all Employees of the Company on the date hereof will continue in the employment of the Company.

·        The SP recognises that the government in relation to its employment policies follows certain principles for the benefit of the members of the Scheduled Caste / Schedules Tribes, physically handicapped persons and other socially disadvantages categories of the society.  The SP shall use its best efforts to cause the Company to provide adequate job opportunities for such persons.  Further, in the event of any reduction in the strength of the employees of the Company, the SP shall use its best efforts to ensure that the physically handicapped persons, Scheduled Castes/Scheduled Tribes are retrenched at the end.

Substantive Clauses

·     Notwithstanding anything to the contrary in this Article __, the Government, shall at any time and at its sole discretion, have the option of selling shares from its shareholding in the company, representing not more than __ of the share capital of the company existing as of date of this Agreement, to the employees of the Company (“employees sell share”).   In the event that the Government exercises its option to sell part of its shares to the employees, the employees shall be issued fresh share certificates for the shares transferred to the employees.  The Shareholders agree that, upon the completion of transfer, the shares transferred to the employees pursuant to this sub-clause shall not be subject to any restrictions in this Agreement, whether by way of a voting arrangement or a right of first refusal. 

·                       The SP covenants with the Government that

(a)    notwithstanding anything to the contrary in this Agreement, it shall not retrench any of the Employees of the Company for a period of 1 (one) year from the Closing Date other than any dismissal or termination of Employees of the Company from their employment in accordance with the applicable staff regulations and standing orders of the Company or applicable Laws;

(b)    notwithstanding anything to the country in this Agreement, but subject to Sub-Clause (a) above, any restructuring of the labour force of the Company shall be implemented in the manner recommended by the Board and in accordance with all applicable Laws;

(c)    notwithstanding anything to the contrary in this Agreement, but subject to Sub-Clause (a) above, in the event of any reduction of the strength of the Company’s Employees, the SP shall ensure that the Company offers its Employees an  option to voluntarily retire on terms that are not, in any manner, less favourable than the VRS applicable before disinvestment.

****

CHAPTER - V

CAPACITY BUILDING

Seminars / Conferences / Training

5.1       Capability is strengthened within the Ministry through training programmes, workshops, seminars etc. Exchange of ideas in disinvestment have been taken up with the countries who are involved in this exercise the world over.

i) Seminar on Valuation of Shares

The Ministry organized a seminar in collaboration with the SBI Capital Market on the subject of valuation of shares. The seminar evoked good response from Government Departments, PSUs and the merchant bankers. It was helpful in creating awareness amongst the participants and in dispelling many misconceptions in this regard.

ii) Conference on "Global Experiences in Privatisation"

The Ministry of Disinvestment in association with the Administrative Staff College of India, and with the Department for International Development, UK and the World Bank as co-sponsors, organised a Conference on "Global Experiences in Privatisation" at Hyderabad during the period from April 9 to 11, 2001. The Chief Minister of Andhra Pradesh delivered the opening address and the Minister of Disinvestment delivered the Keynote address in the conference. Lord Nigel Lawson, former Chancellor of Exchequer, United Kingdom, addressed the Conference along with other notable speakers. Senior level representatives of various Ministries/Departments of the Central and the State Governments and Senior level functionaries of Public Sector Enterprises attended the Conference.

iii) Documentary film on Disinvestment

A film titled "Turning Silver into Gold" depicting the post - privatisation scenario of Lagan Jute, Modern Foods & BALCO has been made and telecast through Doordarshan. The film has been widely disseminated and appreciated.

iv)  Publications

Ministry of Disinvestment has, in its endeavour to standardize the process of various aspects of disinvestment transactions and for the purpose of  transparency, dissemination of information, come out  with the following publications which have been distributed free of cost and hosted on the website of the Ministry (www.nic.divest.in)

                                                        CHAPTER - VI

IMPLEMENTATION OF OFFICIAL LANGUAGE POLICY

6.1       The Ministry has a full-fledged Hindi Section for handling all statutory work, i.e. complying with the bilingual requirements of the Parliament pertaining to the Ministry, and all our efforts are on to comply with the provisions of section 3(37) of Official Language Act, 1963, in the Ministry.

CHAPTER - VII

DISINVESTMENT IN PUBLIC SECTOR UNDERTAKINGS YEAR-WISE

Actual Disinvestment from April 1991 to December 2002 and Methodologies Adopted

7.1       The disinvestment of Government equity in Public Sector was made through public offer in small lots from 1991-92 to 1999-2000. The disinvestment through strategic sale   started from 1999-2000.  The following table indicates the actual disinvestment from 1991-92 to 2002-2003 (upto December 2002), the methodologies adopted for such disinvestment and the extent of disinvestment in different CPSUs.

Actual Disinvestment from April 1991 till December 2002, Methodologies Adopted

* Total number of companies in which disinvestment has taken place so far. 

7.2             The table below indicates the company wise realisation through strategic sale .

               Strategic Disinvestments beginning 1999-2000 till  December,2002.  

                                                                                                            Rs crore

*    Including NPV of future earnings on MGAP & lease rentals       **   expected    ##    Loss making for latest years

^    including dividend & divi. Tax            ^^  minimum amount to be received over 3 tranches; could go up to Rs. 3158 cr.#    Restructuring/Conversion of Loan into equity & waiver of interest - hence a loss.  Companies at Sr. No. 5, 23, 25, 26, 27 & 33 are       subsidiaries.   Sale at 33 to be approved by Government/BIFR

7.3     The table reveals that during the last two years the Government has sold a little over 1% of its total equity. 

7.4       The Government has received Rs. 11344 crore from these sales.  Some sales also lead to annual revenue.  The Government of India’s borrowing rate is of the order of 10%.  Hence, this realisation would lead to a benefit of Rs. 1140 crore to the country every year in perpetuity.   As against this benefit, the dividends received by Government on its equity, which has been sold, averaged Rs. 52.41 crore during the last eight years.   However, PPL and Jessop led to an average annual outgo of Rs. 126 crore as shown in the Table.  Thus, the Government lost Rs. 73.59 crore ever year due to its majority equity presence in these companies.   The sales of part equity in 36 companies would bring an annual real benefit to the economy to the tune of Rs.1140 + 73 crore = Rs. 1213 crore.  There can be no justification for maintaining public sector character in these industries, if the taxpayer has to lose more than Rs. 1213 crore every year by non-privatisation.

7.5       There is often an argument that the Government should not sell profit-making companies.  BALCO was a profit making company, which earned the Government an average dividend (over eight years) of Rs. 5.69 crore every year on the equity sold. As shown in the Table, the Government would now get Rs. 82.65 crore every year.  CMC was a very well managed and profitable company, yet the average dividend was only Rs. 0.80 crore.  The Government’s benefit now is Rs. 15.2 crore annually. Similarly, Maruti Udyog Ltd. gave average returns to the tune of Rs. 13 crore annually to the Govt. and IPCL gave Rs. 16.24 crore on equity sold against Rs. 242 crore and Rs. 149 crore respectively which can be expected now. The argument can be multiplied in each sale of profit making company implemented so far. Thus the reason to privatise these companies

7.6       In case of a loss making company like PPL, the Government was losing Rs. 12 crore every month (after privatization, the revised accounts reveal that the losses were higher) and there can be no justification for maintaining it in the public sector. All hotels of ITDC sold so far were loss making. There were some hotels whose losses exceeded their turnover. The sale of such hotels, besides getting revenue for the government have saved the tax payer from having to make good these losses at some future date.

7.7       The table given below indicates the total amount of realisation through disinvestment under the two categories of methodology  adopted since 1991-92.

Actual Disinvestment from April 1991 till November 30, 2002; Realisation and Methodologies Adopted

*     Seven companies are common in both modes            **   Of profit making companies in monopoly days

^    Includes expected accruals from deals finalised and receipt of cash surplus / special dividend and dividend tax     ^^  From 25 loss making & 11 profit making

7.8       In the first phase, disinvestment through sale of shares yielded over Rs.19,000 crore by selling equity worth of Rs. 2793 crore. In the latter phase, Government has already realised around Rs. 11000 crore by selling equity worth of Rs. 894 crore.

7.9 The tables below indicate the transactions likely to be completed by 31^st March, 2003 and the progress in the ongoing disinvestment cases:

1. Transaction likely to be completed by 31^st  March, 2003 

2.         Progress in the on-going disinvestment cases :

   a)         Cases in which disinvestment decision has been taken.

b)   Disinvestment Commission’s  Recommendations in respect  of following PSUs are under examination by the Government.

1.                  Neyveli Lignite Corporation Ltd.

2.                  Rail India Technical & Economic Services Ltd.

3.                  Projects & Equipment Corporation Ltd.

4.                  IRCON International Ltd.

5.                  Central Inland Water Transport Corporation Ltd.

6.                  Cochin Shipyard Ltd.

7.                  Hindustan Shipyard Ltd.

8.                  Dredging Corporation of India Ltd.

9.                  National Projects Construction Corporation Ltd.

10.             Semiconductor Complex Ltd.

11.             Telecommunication Consultants India Ltd.

12.             Cotton Corporation of India Ltd.

13.             Indian Medicines Pharmaceuticals Ltd.

14.             Jute Corporation of India Ltd.

15.             National Buildings Construction Corporation Ltd.

3.  Open Offer as per SEBI guidelines completed by the Strategic Partner

4.         Employees Stock Purchase Scheme  in respect of listed PSUs privatised.

5. CPSUs returned to DHI/administrative Ministry as no bidders responded

1. Reyrolle Burn Ltd.

2. Bharat Brakes and Valves Ltd.

3. Scooters India ltd.

4. Bharat Pumps and Compressors Ltd.

5. Praga Tools Limited 

6. Bharat Leather Corporation.

7. National Industrial Development Corporation.

8. Hindustan Insecticides Limited.

CHAPTER - VIII

ADVANTAGES OF STRATEGIC SALE

8.1       From the year 1992 to 1999, much of the disinvestment was in the form of sale of minority stake in profit making-enterprises. The price realized through the sale of minority stakes, even in blue chip companies such as Indian Oil Corporation, Bharat Petroleum Corporation Ltd, Hindustan Petroleum Corporation Ltd, Gas Authority of India Ltd and Videsh Sanchar Nigam Ltd. was low as indicated by the price to earning ratios as compared to price realized through strategic disinvestment. On the other hand, the prices realized through strategic disinvestment have been very high.

P.E. RATIOS

* inclusive of income from dividend etc.

8.2.      During the period 1991-2000, the sale of minority share of public sector undertakings had led to an income of about Rs.19,000 crore. Most of the shares during this period were picked-up by financial institutions. Unit Trust of India (UTI) was one of such institution, which had picked up sizeable number of shares.  Since the Public Sector Undertakings did not do well their share prices fell leading to a loss to UTI.  It is expected that losses to UTI and other financial institutions will reduce on account of strengthening of public sector share values recently.

8.3.      The figures given in the preceding paragraphs would show that the policy announced by the Finance Minister in the Budget speech of 2000-2001 in favour of strategic sales of identified PSUs has paid dividend. To recall, the Finance Minister had said: … "Government have recently established a new Department for Disinvestment to establish a systematic policy approach to disinvestment and privatization and to give a fresh impetus to this programme which will emphasize increasingly on strategic sales of identified PSUs." It can be said that the taxpayer can gain above Rs.1208 crore per year from the sale of a few undertakings at a notional calculation of 10% returns on the proceeds so far minus the outgo in terms of additional support to these companies as can be seen  from the table given in the Chapter VII. If this exercise moves forward, the gains to the tax-payer would be tremendous. The economy would gain as the public sector assets would yield much higher dividend to the economy than what they are yielding at present.

8.4.      During the period of three years (1999-2002), disinvestment proceeds (inclusive of dividend, dividend tax etc.) have provided more than Rs. 11,300/- crore for the Government exchequer. Government has successfully disinvested through strategic sale  companies like Modern Foods Industries (India) Ltd. (MFIL), Bharat Aluminium Company Ltd. (BALCO), CMC Ltd., HTL Ltd., IBP Ltd., Videsh Sanchar Nigam Ltd. (VSNL),Paradeep Phosphates Ltd. (PPL), Hindustan Zinc Ltd. (HZL), Indian Petrochemicals Corporation Ltd. (IPCL) and Maruti Udyog Ltd. (MUL) and a number of  hotels of India Tourism Development Corporation Ltd. (ITDC) and Hotel Corporation of India Ltd. (HCI).  By selling loss making companies and those companies which are under reference to Bureau of Industrial and Financial Reconstruction (BIFR) like Paradeep Phosphates Ltd. (PPL), some hotels of ITDC/HCI etc. the Government saved the amount it would have had to pay in rehabilitation packages, which will now be provided by strategic investor, as required.

8.5.      Disinvestment through strategic sale has raised the value of PSUs listed stocks  (and therefore their total market cap) by around 78% in value from around Rs. 96,062 crore in January, 2002 to over Rs.1,70,375 crore in July 2002.  This has benefited all those who have invested in PSU stocks, including small retail investors and financial institutions etc. and also provided strength to the markets. The small investor who had stake in PSUs has gained tremendously due to open offer after strategic sale in CMC, VSNL, IBP, HZL and IPCL.

8.6.  Maruti Udyog Limited (MUL): Government on 14^th May 02, approved disinvestment in Maruti Udyog Limited (MUL) through a two-stage process.

(i)                 a rights issue by MUL in the first phase of Rs.400 crores with Government renouncing its rights share to Suzuki. Suzuki would gain majority control  and pay Rs 1000 crores to Government as control premium.

(ii)               sale of its existing shares through a public issue in the second phase ; the issue to be underwritten by Suzuki.

In the earlier transactions with SUZUKI in 1982 and 1992, when SUZUKI’s shareholding was allowed to be increased (vis a vis GOI), first from 26% to 40% and then from 40% to 50%, no control premium had been paid by SUZUKI, though control had passed to them.  Government received no payment at this stage as shareholding was allowed to be increased by issuance of new shares to MUL.  The pricing formula in 1992 also yielded a low price per share of Rs.269 at which the transaction was done. Using the same formulae of 1992 now, the price per share would be Rs.1153. As against this, the current rights issue was at a price of Rs.3280  Also, against ‘nil’ control premium last time, the GOI has been paid Rs.1000 crore as control premium.

8.7       The performance of a very large number of public sector industries is disappointing, often owing to reasons beyond the management’s control. Performance is particularly poor in  public sector manufacturing industries. Some of the public industries have done extremely well, but these are in monopoly sectors like Petroleum, Power and Telecom, where prices are determined by Government on a cost plus basis. Once these monopolies go, public sector industries come under severe pressure and generally become loss making. SAIL is a classic example where the company has started making heavy losses after it has had to compete with private sector industries, after liberalization.

8.8.       As per report of Comptroller and Auditor General for the year ended 31^st March, 2001, Government had invested Rs.79,080.60 crore directly in the equity capital of 265 PSUs.  Out of these 121 PSUs had also received from Government of India loans amounting to Rs.43,259.50 crore as on 31^st March, 2001.  Net Investment in equity of PSUs by the Government of India and loans given to them have increased by Rs.5739.98 crore and Rs.4176.85 crore respectively. During 2000-01 alone, the CAGs report on CPSUs indicates that the taxpayer has taken a huge burden in one year alone. These figures are shown below.

Highlights of the CAG Report on the Performance of the CPSUs (FY 2000-01) 

• During 2000-01 the Government of India supported CPSUs by providing subsidy amounting to Rs.6214 crore 
• Loans and interest to the extent of Rs.1831 crore were waived by Government of India for CPSUs.
•  Guarantees to the extent of Rs.14651 crore were provided to the CPSUs for payment of their loans.

            Total liability : Rs.22696 crore

8.9.      Signing of WTO has increased the pace of globalization and unless industries are highly competitive they will not survive. The public resources can be better utilised elsewhere in the core areas of public governance or for reducing the public debt. There is no reason why the taxpayer should bear the burden of subsidising running inefficient industries. 

8.10.   Disinvestment and Economic Growth: The number of loss making PSUs has increased from 102 in 1991-92 to 111 in 2000-01.  As against 2.179 million employees in 1991-92, the number of employees has declined to a level of 1.742 million by 2000-01.  In several cases, wage settlements have been pending for a long time.  With the onset of economic liberalization, several PSUs have come under severe financial stress.  SAIL, which was a profitable company till 1997-98, has started making loss subsequently and its loss in 2000-01 was Rs.728.66 crore. Similarly, Hindustan Organic Chemical Limited was a profitable company till 1996-97 and thereafter it started making loss and its loss in 2000-01 is Rs.39.06 crore.  Hindustan Copper Limited was a profitable company till 1995-96 but thereafter it started making loss and the loss in the year 2000-01 is Rs.105.80 crore.  The case of HMT and STC is similar.  As on 31.3.2001, out of 234 PSUs, 111 PSUs incurred an annual loss of Rs.12,838.78 crore.  Economic growth and self-reliance can best be generated by making the Indian economy more efficient and competitive and by raising the level of investment to a level appropriate for high growth.  All these three objectives can be achieved through disinvestment. 

CHAPTER- IX

STATUS OF COURT CASES AND LANDMARK JUDGEMENT IN BALCO DISINVESTMENT.

9.1       Since the Ministry of Disinvestment came into being in December 1999, there have been a large number of lawsuits filed against the process for various reasons.

SUMMARY OF DISINVESTMENT RELATED COURT CASES (AS ON 31-12-2002)

1.         Total number of cases filed up to 31.12.2002                   -           40

2.         ITDC related cases                                                               -           23

3.         Total cases out of 40 dismissed                                         -           21

4.         Number of pending cases                                                    -           19

5.         Out of pending cases related to ITDC cases                     -           7

transferred to Supreme Court

Note:       The above table does not include cases where the challenge is not to disinvestment but to other aspects like pay revision etc.

9.2       Out of the cases indicated above, there has been a landmark judgement delivered on 10^th December, 2001 upholding the disinvestment by the Government in BALCO.

9.3       Landmark judgement in BALCO disinvestment:  51% of Government held equity in Bharat Aluminium Company Ltd. (BALCO) was disinvested on 2^nd March, 2001 in favour of M/s Sterlite Industries (India) Ltd. for Rs.551.50 crore. In protest, the workers went on a 67-day strike. Three writ petitions-two in Delhi high Court and one in Chhatisgarh High Court were filed against disinvestment in BALCO in February, 2001. Since the issues involved in all three cases were similar, a transfer petition was filed by the Ministry of Disinvestment in the Supreme Court. The Supreme Court considered the petition, stayed the proceedings in the High Courts and transferred all the three petitions for hearing to itself.  A three-judge bench in the Supreme Court heard the case and concluded as follows:-

“In a democracy, it is the prerogative of each elected Government to follow it's own policy. Often a change in Government may result in the shift in focus or change in economic policies. Any such change may result in adversely affecting some vested interests. Unless any illegality is committed in the execution of the policy or the same is contrary to law or mala fide, a decision bringing about change cannot per se be interfered with by the Court.

Wisdom and advisability of economic policies are ordinarily not amenable to judicial review unless it can be demonstrated that the policy is contrary to any statutory provision or the Constitution. In other words, it is not for the Courts to consider relative merits of different economic policies and consider whether a wiser or better one can be evolved. For testing the correctness of a policy, the appropriate forum is the Parliament and not the Courts. Here the policy was tested and the Motion defeated in the Lok Sabha on 1st March 2001.

Thus, apart from the fact that the policy of disinvestment cannot be questioned as such, the facts herein show that fair, just and equitable procedure has been followed in carrying out this disinvestment. The allegations of lack of transparency or that the decision was taken in a hurry or there has been an arbitrary exercise of power is without any basis. It is a matter of regret that on behalf of State of Chhattisgarh such allegations against the Union of India have been made without any basis. We strongly deprecate such unfounded averments, which have been made by an officer of the said State.

The offer of the highest bidder has been accepted. This was more than the reserve price, which was arrived at by a method, which is well recognized, and, therefore, we have not examined the details in the matter of arriving at the valuation figure. Moreover, valuation is question of fact and the Court will not interfere in matters of valuation unless the methodology adopted is arbitrary [see Duncans Industries Ltd. vs. State of U.P. and Others, (2000) 1 SCC 633].

The ratio of the decision in Samatha’s case (supra) is inapplicable here as the legal provisions here are different. The land was validly given to BACLO a number of years ago and today it is not open to the State of Chhattisgarh to take a summersault and challenge the correctness of it's own action. Furthermore even with the change in management the land remains with BALCO to whom it had been validly given on lease.

Judicial interference by way of PIL is available if there is injury to public because of dereliction of Constitutional or statutory obligations on the part of the government. Here it is not so and in the sphere of economic policy or reform the Court is not the appropriate forum. Every matter of public interest or curiosity cannot be the subject matter of PIL. Courts are not intended to and nor should they conduct the administration of the country. Courts will interfere only if there is a clear violation of Constitutional or statutory provisions or non-compliance by the State with it's Constitutional or statutory duties. None of these contingencies arise in this present case.

In the case of a policy decision on economic matters, the Courts should be very circumspect in conducting any enquiry or investigation and must be most reluctant to impugn the judgement of the experts who may have arrived at a conclusion unless the Court is satisfied that there is illegality in the decision itself.

Lastly, no ex-parte relief by way of injunction or stay especially with respect to public projects and schemes or economic policies or schemes should be granted. It is only when the Court is satisfied for good and valid reasons, that there will be irreparable and irretrievable damage, can an injunction be issued after hearing all the parties. Even then the Petitioner should be put on appropriate terms such as providing an indemnity or an adequate undertaking to make good the loss or damage in the event the PIL filed is dismissed.

It is in public interest that there should be early disposal of cases. Public Interest Litigation should, therefore, be disposed of at the earliest as any delay will be contrary to public interest and thus become counter-productive.

For the aforesaid reasons stated in this judgment, we hold that the disinvestment by the Government in BALCO was not invalid.”  

CHAPTER- X

PSUs POST-DISINVESTMENT

10.1.   A fear is often expressed that the employees would lose if companies are privatised. Recent privatizations have shown that these fears are totally unfounded. Of a total workforce of about 350 million in this country, the public sector employs only about 2 million. During the last ten years, without any privatization or strategic disinvestment, this work force has got reduced from 2.3 million to 1.7 million on account of economic pressures. Privatized companies have not retrenched a single person. Some of the companies are now in the process of restructuring and would accept some voluntary retirement applications. Some companies are giving VRS to the employees at scales which are normally higher than the Government VRS. Shareholders Agreement with private companies normally have a provision that employees interest would be protected by ensuring VRS, which is higher or equal to the Government VRS, if there is a need for restructuring in the number of employees. As has been stated above, such exercises are done during the public sector regime also.

10.2.   Very often additional recruitment also takes place in privatised companies and the wages are increased. The paragraph given below indicates the improvements in employees welfare post disinvestment.

10.3.   Improvements in operational efficiency of disinvested PSUs: One of the primary objectives of disinvestment, especially through strategic sale route, is that with the transfer of management control into private hands, private capital and management practices would be used effectively to increase the operational efficiency of the company with its attendant spill over benefits for the Indian economy.  The limited time span since strategic disinvestment has taken place restricts the generation of detailed information in this regard.  However, on the basis of information provided by disinvested PSUs it appears that there has been a significant jump in efficiencies post disinvestment.

• MFIL was a loss making PSU prior to disinvestment. However, post disinvestment wages have increased by an average of Rs 1800 per employee. The VRS package given to employees is more beneficial as compared to the DPE guidelines.  Its turnover has increased substantially and losses have come down substantially.  The Strategic Partner has   funded the revival plan which has brought MFIL out of BIFR purview.
• In the case of CMC post disinvestment the business has rapidly expanded. There has been a net addition of 425 employees or around 15% of the workforce at the time of disinvestment, through fresh appointments. One indication of the value addition post disinvestment is that the price of its share has more than doubled.  It had reached a peak of 4 times the price of sale at one point of time.
• In the case of Balco soon after disinvestment a wage revision which had been pending since April 1, 1999 was finalized for a period of five years giving employees on average a 20% increase along with a substantial increase in allowances. The production capacity is being expanded by 400% from 1 LTPA to 4 LTPA, at a cost of about Rs.6,000 crores and a MOU has been signed with the Government of Chattisgarh  to this effect.
• PPL was another loss making PSU. Post disinvestment a wage revision was effected which had been pending since 1997. This was made payable since January 1, 1997 and average wages increased by 30%. Production has increased by 250% and monthly loss has declined from a stated Rs 120 million earlier to Rs 30 million post disinvestment.
• In the case of HZL, post disinvestment output has increased, employee facilities like LTC, leave encashment, House Building Advance which were suspended earlier were restored and a production incentive scheme introduced to enable employees to share in the gains in productivity.
• In most companies disinvested so far, the SP have provided computers and an environment for e-learning and also provided extensive training.

10.4.         Discussions in the Houses of Parliament:  The subject of disinvestment in PSUs has been discussed in great detail in both Houses of Parliament on many occasions in response to notices for calling attention or during short duration discussions etc.  The two Houses of Parliament have discussed the disinvestment policy in fourteen debates since 1999 till Winter Session of Parliament 2002. About 1060 questions have been answered on disinvestment in the Parliament since the Budget Session of the year 2000 till Winter Session of Parliament, 2002.

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