Monday, May 30, 2011

STRATEGIC SELL OFF Logic Gets Momentum as ONGC Profit Falls 26% on Discounted Sales!It is claimed that Indian Oil Corp , the country's biggest refiner and oil retailing firm, on Monday reported a 30 percent slump in fourth-quarter profit, weighed by

STRATEGIC SELL OFF Logic Gets Momentum as ONGC Profit Falls 26% on Discounted Sales!It is claimed that  Indian Oil Corp , the country's biggest refiner and oil retailing firm, on Monday reported a 30 percent slump in fourth-quarter profit, weighed by rising under-recoveries on petroleum products sold at subsidised rates.ONGC could launch planned FPO in July!Disinvestment Council have recommended TOP MOST Priority for DISINVESTMENT for Most PROFITABLE PSUs. SBI, LIC and ONGC have to be DIVESTED, thus!

Indian Holocaust My Father`s Life and Time - SIX HUNDRED FIFTY

Palash Biswas

ONGC could launch planned FPO in July!

STRATEGIC SELL OFF Logic Gets Momentum as ONGC Profit Falls 26% on Discounted Sales!It is claimed that  Indian Oil Corp , the country's biggest refiner and oil retailing firm, on Monday reported a 30 percent slump in fourth-quarter profit, weighed by rising under-recoveries on petroleum products sold at subsidised rates.Disinvestment Council have recommended TOP MOST Priority for DISINVESTMENT for Most PROFITABLE PSUs. SBI, LIC and ONGC have to be DIVESTED, thus!

Govt eyes divestment in IOC, SAIL and ONGC in Q1 next year
Mumbai, Nov 8, (PTI):

The government is likely to dilute its stake in Indian Oil Corporation, Steel Authority of India Ltd and ONGC in the January-March quarter of 2011, a top government official said here.
"We are looking at divestment in Indian Oil Corporation, Steel Authority of India Ltd and ONGC in the first quarter of 2011," Disinvestment Secretary Sumit Bose told reporters here. He, however, declined to comment on the amount that the government is likely to raise from the three issues.

"We can't do valuation right now," Bose said, when asked about the amount that could be mopped up from disinvestment in SAIL, IOC and ONGC. Bose also said that the divestment target of Rs 40,000 crore will be achieved this fiscal.

"We are raising Rs 40,000 crore through divestment this fiscal. We are now planning to disinvest stake in Shipping Corporation of India (SCI), Manganese Ore (India) Limited and Hindustan Copper in current fiscal year," Bose said.

Aiming to raise Rs 40,000 crore through disinvestment in the current fiscal, the government has diluted its stake in Satluj Jal Vidyut Nigam, Coal India and Engineers India Ltd.

Besides, PowerGrid Corporation's follow-on offer to raise about Rs 8,000 crore opens tomorrow, when the Centre would disinvest 10 per cent of its 86.36 per cent stake and the company would raise equal per centage of fresh equity.

Last fiscal, it had raised Rs 25,000 crore through stake sale in Oil India, NMDC, REC and NTPC.

s on 30 April 2011, the 50 Central Public Sector Enterprises (CPSEs) listed on the stock 

exchanges contributed about 22% of the total market capitalization.

CompanyMarket Capitalisation
COAL INDIA LTD. 2,40,085.01 
NTPC LTD.1,50,026.22 
NMDC LTD.1,08,157.45 
MMTC LTD.99,090.00 
GAIL (INDIA) LTD.59,766.46 
Click here for Market Capitalisation of all CPSEs
What's New   What's New

Disinvestments through Public Offers-Highlights
Disinvestments through Public Offers-Highlights
  • CPSEs constitute 22.1% and 22.54% of the total market capitalisation of companies listed at BSE and NSE respectively (as on 30 April 2011)
  • The CPSE with the highest market capitalisation is ONGC at Rs. 2,64,279 crore (BSE) and Rs. 2,63,338 crore (NSE) (as on 30 April 2011)

  • VSNL was the first CPSE to be divested by way of a Public Offer in 1999-00

  • ONGC Public Offer in 2003-04 has been the largest CPSE FPO, raising Rs. 10,542 crore

Hindu reports:
The Centre will divest equity in National Building Construction Corporation (NBCC) in the second half of the current fiscal, while disinvestment in big public sector companies such as SAIL and ONGC is likely to happen in next two months, Disinvestment Secretary Sumit Bose said here on Tuesday.
Mr. Bose, who was addressing a press conference to announce the Power Finance Corporation's further public offer (FPO), said the government would meet its target of Rs.40,000 crore from disinvestment in the current fiscal, as announced by Finance Minister Pranab Mukherjee in his budget speech this year.
"We are beginning with PFC and next month we will do FPO of SAIL, followed by disinvestment of 5 per cent in ONGC in July. NBCC and Rashtriya Ispat Nigam will come up in the later half of the current fiscal," Mr. Bose said.
On the issue of disinvestment of Hindustan Copper that has been pending since last year, he said: "They (the company) are taking certain investment decisions in new mines. As soon as that is completed, we will take a call on time of the issue."
The government is likely to fetch Rs.7,000-8,000 crore from SAIL's offer, while another Rs.13,000 crore will come from disinvestment in ONGC.
From the PFC offer, the government is likely to garner over Rs.1,100 crore. Besides, there would be a 15 per cent fresh equity sale worth over Rs.3,300 crore.
The government has proposed a disinvestment target of Rs.95,000 crore from the sale of shares in public sector companies in the next three fiscals, including Rs.40,000 crore in the current fiscal. In 2010-11, the government had raised Rs.22,400 crore through disinvestment in PSU companies by coming out with three IPOs and three FPOs.

State-run explorer Oil & Natural Gas Corp may launch a follow-on public offer in the second week of July, its chairman said on Monday, providing a tentative timeline for an issue originally planned for the prior fiscal year.

The government had said it planned to raise up to $2.8 billion in the ONGC share sale as part of a plan to sell stakes in 60 firms over the next few years to cut its fiscal deficit and garner funds for social welfare programmes.

Earlier on Monday, ONGC reported a 26-percent fall in quarterly profit, as an increase in its share of oil subsidy burdens offset the gains from higher crude oil and gas prices. ($1 = 45.18 Rupees)

Oil and Natural Gas Corp. Monday missed market expectations with a 26% drop in quarterly net profit, weighed by a surge in discounts on crude sales to state-run refiners.

Net profit for the fourth quarter through March fell to 27.91 billion rupees ($618 million) from 37.76 billion rupees a year earlier, India's largest oil producer by volume said.

Net sales rose 5% to 153.96 billion rupees from 147.13 billion rupees.

Earlier this month, the government raised the share of subsidy burden for upstream firms to 38.7 percent for the March quarter from 33.33 percent earlier.

"There was lower profit in the quarter due to higher subsidy burden," Chairman A.K. Hazarika told reporters.

ONGC said discounts to refiners jumped to 121.36 billion rupees ($2.7 billion) for the March quarter from 49.99 billion in the same period last year.

Gross realisation from oil sales rose to $108.90 per barrel from $79.15, while net proceeds after subsidies fell to $38.75 a barrel from $51.42.

India allows state-run refiners to set retail prices for petrol, but the government controls the price of diesel, cooking gas and kerosene, which means ONGC must sell crude to those refiners at discounted rates.

New Delhi has said it wants to loosen control of fuel prices, but has found the going difficult after global crude rose nearly 17 percent in the fourth quarter, on top of a 14 percent rise the previous quarter.

State-run fuel retailers -- IOC, Bharat Petroleum Corp and Hindustan Petroleum Corp -- last raised petrol prices by 8.6 percent in mid-May, but these still don't fully reflect international crude prices.

"There may be a knee-jerk reaction to the results, but the long-term worries are already reflected in the stock. This company would be worth much more without government interference," said Ambareesh Baliga, chief operating officer at Way2wealth Securities.

Shares in ONGC, valued at nearly $53.4 billion, ended down 1.9 percent in a weak Mumbai market ahead of the earnings. The stock has declined 13.8 percent so far in 2011, against a 11.1 percent fall in the main index.


ONGC said net profit for its fourth quarter rose to 27.9 billion rupees from 37.76 billion, against a forecast of 50.4 billion rupees in a Reuters poll of brokerages. Revenue rose 8.3 percent to 153.96 billion rupees.

Last month, energy giant Reliance Industries posted a 14 percent rise in quarterly profit to a record high, but still missed market estimates.

India is the world's fourth-largest oil importer, importing about 80 percent of its crude needs. It is scouting for oil and gas assets abroad to meet demand in an economy growing around 8.5 percent, and to feed its expanding refining capacity.

ONGC, which has led these efforts, plans to submit a bid for a stake in Russia's Yamal LNG project, jointly with state-run GAIL and Petronet LNG, a top company executive said.

"This project is attractive to us as Russian authorities have given a tax holiday," ONGC Videsh Managing Director Joeman Thomas said.

The company may launch a follow-on public offer in the second week of July, chairman A.K. Hazarika said on Monday, providing a tentative timeline for an issue originally planned for the prior fiscal year.

The government had said it planned to raise up to $2.8 billion in the ONGC share sale as part of a plan to sell stakes in 60 firms over the next few years to cut its fiscal deficit and find funds for social welfare programmes.

Eight analysts in a poll expected, on average, profit of 53.67 billion rupees after accounting for discounts worth 90.28 billion rupees to state-run refiners to partly compensate them for the revenue losses suffered on selling products at state-set prices.

But the Indian government asked the explorer to offer discounts worth 121.35 billion rupees to the refiners during the fourth quarter, compared with 49.99 billion rupees a year earlier.

Explorers across the world have reported net profit grew in the January-March quarter as Brent crude oil prices surged 37% from a year earlier to $105 a barrel due to unrest in the Middle East and North Africa. But earnings of state-run Indian explorers such as ONGC and Oil India Ltd. are capped as they have to offer discounts on crude sales to refiners and fuel retailers such as Indian Oil Corp.

After discounts, ONGC earned $38.75 a barrel on crude oil sales in the fourth quarter, compared with $51.42 a barrel a year earlier, the company's finance director D.K. Sarraf told reporters.

A drop in earnings hurts ONGC as it looks to drill more wells, buy oil and gas assets overseas, and boost investor confidence ahead of a proposed share sale plan by the federal government in July.

New on divestment map: 5% in ONGC, 10% in IOC to

Amitav RanjanTags : Indian Oil Corp, Oil & Natural Gas Corp,National Investment Fund, Sumit BosePosted: Fri Aug 06 2010, 03:09 hrsNew Delhi:

The disinvestment roadmap is being altered to include sale of 10 per cent government equity in Indian Oil Corp and 5 per cent in Oil & Natural Gas Corp to raise Rs 20,000 crore in the current fiscal year for the National Investment Fund, currently used for social spending.

Following a letter from Disinvestment Secretary Sumit Bose, the Petroleum Ministry is preparing the proposal for Cabinet approval, said sources. On August 2, Bose wrote to the Ministry to initiate the disinvestment process in both firms so that the proceeds could be garnered this fiscal.

According to the roadmap, IOC would be the first to be disinvested but only after it makes an initial public offer of 10 per cent or nearly 24 crore shares to raise Rs 9,500 crore for part-financing its capital expenditure programme estimated at Rs 75,000 crore.

This would be followed by sale of 10 per cent government holding amounting to 19 crore shares to raise Rs 7,600 crore for the NIF. Government equity, after the two-step sale, in the refining-cum-marketing firm would drop to 64.57 per cent from current 78.92 per cent, said IOC officials.

Next in line would be ONGC with a disinvestment of 5 per cent or 10.7 crore shares to raise about Rs 12,840 crore at the current market price of Rs 1,200 per share. The government currently holds 74.14 per cent in the oil major.

The inclusion of oil heavyweights in the roadmap follows the recent reforms in the petroleum sector such as increase in kerosene and LPG prices, market benchmarking of petrol and diesel prices, raising consumer price of natural gas and more time for exploration firms under the rig holiday scheme.

Govt to sell minor stakes in IOC, ONGC and Gail

TNN, Jul 12, 2002, 02.11am IST

NEW DELHI: In case you were impressed by the pace of the Vajpayee government on the disinvestment track, here comes the real shocker: Disinvestment Minister Arun Shourie is pressing hard for an early wheel-out of blue-chip PSUs like IOC, ONGC and Gail.

And Prime Minister A B Vajpayee and his senior cabinet colleagues are not protesting.

Thursday's Cabinet Committee On Disinvestment meeting saw Shourie roll out an aggressive plan involving not just the strategic sale of public oil majors HPCL and BPCL as well as other ratnas, but also a limited stake sale of ONGC, IOC and Gail which have been ruled off the disinvestment agenda on the ground that they are 'strategic'. Even a small sale of ONGC, IOC and Gail shares—a mere 5-10 per cent—could fetch as much as Rs 24,800 crore at prevailing prices.

The mining ministry wanted exactly the same format for Nalco, a demand which was rejected today by the CCD which stipulated that Nalco's public offering and the selloff process should happen simultaneously. The precedent having been set, Ram Naik — a party to today's decision — might find it difficult to chart a different course for HPCL and BPCL.
Mr Shourie's confidence to raise mega bucks from disinvestment stems from the impressive market cap of PSU shares which has gone up to Rs 75,000 crore in the last five months — a gain, even if notional, of Rs 50,000 crore. His team is arguing that the pro-PSU sentiment in the market should be exploited without delay. It was pointed out today that PSU shares have appreciated by a stunning 380 per cent on the BSE against an average share price increase of 14 per cent.
Shourie presented his colleagues with a stark choice: disinvestment fast or perish. The fiscal deficit, the resources needed for meeting the targets of the Tenth Plan as well as the vast amounts required to bail out financial institutions made it imperative for the government to step up on the divestment pedal, he said. Significantly, Shourie's aggressive pitch went unprotested in a gathering that included known status-quoists.
Vajpayee and Advani listened to Shourie intently, while K C Pant strongly seconded the disinvestment minister. The PM's silence is not being interpreted a sign of ambiguity, because only yesterday he declared at a meeting of his council on trade and industry: "We will further accelerate disinvestment of PSU...we will relinquish government involvement in production and raise resources for development of our social sector."

Today's meeting may appear to have cleared the way for an early strategic sale of BPCL and HPCL. Although the sale of these two oil majors was cleared by the cabinet earlier, petroleum minister Ram Naik had entered a caveat—that they would first have public offerings and sale thereafter.

(Weekly Organ of the Communist Party of India (Marxist)


No. 16

April 18, 2004

             ONGC Disinvestment: The Mother Of All Scams

N M Sundaram

WARREN Buffett and India's disinvestment exercise have a stark interpretive connection. How cheaply shares of six of the prized public sector companies were sold recently in the market is best illustrated by Buffett to whom 'the most striking thing … is how many financial assets are still too expensive for his tastes.' "Everything is too pricey", he declares, and "risk is ill rewarded."… "Yesterday's weeds are today being priced as flowers," says Buffett. The result is that his Berkshire Hathaway is now sitting on a cash pile of $36 billion, much of it in government securities although, as he puts it, these pay "pathetically low interest". He concludes: "the pain of doing something stupid is potentially worse."These are sage words indeed from the man popularly known in his circles as the 'sage of Omaha.' This explains a certain weariness on the part of the most prolific player in equities about the market. The corporate misdemeanours, accounting frauds and CEO excesses in the US and elsewhere in the capitalist world have obviously sapped his appetite for investment profits.


What has all this to do with Indian government's disinvest- ment exercise, one may wonder. Oh Yes it has. As we said already, it has illustrative or interpretive relationship, for Warren Buffett is reported to have picked up quite a large percentage of the shares of ONGC that was up for grabs and it is not known what else. And Buffet, like George Soros, revels in purchasing economies and not just shares of companies. He along with Soros was the financier of the regime change that the US wanted in Georgia. US imperialism's doctrine of regime change employs different methods and operatives. It could be through military invasion as in Iraq, abduction of the duly elected prime minister as in Haiti, subversion by the CIA and such other agencies as was the case in many countries and/or through outright financial subversion as happed in several countries and more recently in Georgia.

If the investment weary Buffett and his ilk were to salivate and show extraordinary interest in the six plum Indian public sector stocks that were disinvested recently, including the ONGC, it only indicates the very low band prices that were fixed by the government that was anxious to garner the most resources before March end in order to bridge the yawning gap in its fiscal management and incidentally show how India indeed was shining. And, what a way for a country to shine!

That the floor prices were fixed at impermissible discounts is apparent to any observer and it does not require market expertise or the enthusiastic entry of the likes of Buffett to know this. The floor prices fixed were much lower than even the reigning prices quoted in the market for these shares. Here are the details:

Market                                                                           Total     

Price on NSE  Price                 Offer Price*            Realisation*

March 18 *                                                                ( crore)

IPCL     — Rs.188.00            195.70       170           1,200

CMC —535.00                   541.50       485           190

IBP    — 604.00                  717.50       620           352

DCI — 509.00                   —              400           221

GAIL   — 210.00                   —              195          1,620

ONGC — 853.00                  —               750         10,500


                                                                                Total Rs.14,083

* Source: Disinvestment Ministry Web Site.



IBP's shares were divested in February 2002, through what is known as strategic sale to IOC, another public sector oil company. The latter then purchased as much as 33 per cent of the shares of IBP at a government administered price of Rs 1,551 per share. Later IOC was asked to purchase another tranche of 20 per cent of shares from market at the same rate. In the present exercise however, the government has offloaded its remaining 26 per cent shares in IBP at a very low price of Rs 620 per share. About 57.58 lakh shares have been sold at this rate. This is an unheard of discount of Rs 931 per share. Two things happen by this exercise: one is the value of IBP stock held by the IOC at the behest of the government depreciates in value to the extent of Rs 536.07 crore, if not more. Second aspect is that conversely, the private entities purchasing these shares, who admittedly are mostly big investors including foreign institutional investors have been given a discount in price to a minimum extent of Rs 536.07 crore. What explanation the ruling NDA would give to this government-organised loot?

This is not the first time that the NDA government did something so stupid or diabolic, whichever way one might call it. In November 1999 soon after coming to power, the government sold 25 per cent of its holding in GAIL at a grossly under-priced value of Rs 70 per share that was 3 to 4 times less than the prevailing market price incurring a loss of as much as Rs 1,500 crore. This was compounded by the fact that much of these shares were sold to competitors like British Gas and Enron. The present exercise of sale of 10 per cent of shares of GAIL and ONGC would lead to a loss of around Rs 6,000 crore at a modest estimate.


In transactions of this kind it is customary to take into account what is called the 'price-earning ratio' or the 'price-revenue ratio.' which is the offered share price divided by earning/revenue per share. Earnings per share are determined by dividing the earnings for the past twelve months by the number of common shares outstanding. A higher multiple would indicate to the investor that higher growth could materialise inducing him to bid at a higher price than normal. The bench mark could also be that of similarly placed oil majors like BP, Exxon-Mobil, Royal Dutch Petroleum etc. Reckoned by these standards, the price could well be much higher than the offered price, say 20 times the earning per share. Where the equity base is higher as in the case of ONGC and GAIL, this ratio would normally be still higher.

The fact that this relates to oil whose reserves are dangerously dwindling and are irreplaceable in direct proportion to the demand/consumption increasing, the share value could be expected to carry a greater weightage than the quoted price in the market. Normally, in such transactions, the possible future value also should come for reckoning. But when the value is pitched much less than the prevailing market price, one could immediately smell something fishy is going on.


Disinvestment is a misnomer for the practice of selling juicy public sector shares to private entities. It amounts to selling present wealth of the country and what is more, prospects of future accretion of wealth. Privatisation of profit making public sector units is bad enough, but when they are sold cheap and the proceeds are utilised to feed the profligacy of the government, without creating new productive assets, it is worse. Profligacy of the government lies not only in its wasteful spending but also in its largesse through tax concessions and the like given to those who ought to be contributing to resource mobilisation. This amounts to the government itself helping to loot national economy. There cannot be a worse crime than this. The crime is compounded when the shares are sold at far less than the intrinsic market value, which at any rate can be depressed by foul means particularly before the shares are divested as happens normally and as has happened in a brazen manner in the present instance.


Considering that four of the six public sector units under disinvestment are connected with oil, a precious, irreplaceable and dwindling resource and oil related industries, the gravity can be well understood. All countries in the world are trying to protect and develop oil and energy resources. The industrial countries like the US are finding themselves vulnerable because of dwindling reserves and are out to control other countries' oil resources. The infamous war of occupation of Iraq was precisely for this. Attempts are being made to destabilise the democratically elected government of Venezuela because that country is unwilling to allow its oil industry to be continued to be dominated by the US.

India's dependence on oil imports is notorious. This is partly because the country has failed to develop its oil resource potential ever since the process of economic liberalisation commenced. Whatever development took place in this respect was through establishment of ONGC and other facilities for prospecting, drilling, pumping out, refining and distributing oil and oil related products in the public sector after great deal of effort, material and technological. Still India is a long way from achieving self-sufficiency; far from it, the country is chronically dependent on imports. From 30 per cent at the time of the first Gulf War in 1991, India's dependency on imports has increased to 73 per cent by March 2003. By the end of this year, India would be importing 75 per cent of its needs. The burden is all the more because of the volatility of international oil prices. One friendly and reliable source Iraq, has now gone. One dollar per barrel increase in oil price would increase the country's import bill by $550 to 600 million per year. International oil prices are now perched at a 14 year high at $38 per barrel for light crude and are dangerously moving in an upward trajectory. So much so, even the US and such other countries are worried. The over statement of oil reserves by Royal Dutch Shell has not been taken kindly by the investors and that has resulted in not only the head of the CEO rolling, but has sent shock waves across the globe about the perceived oil reserves available. The US itself had to acknowledge that its own reserves are dangerously low. An editorial comment in the New York Times in its issue dated March 22, 2004, cautioned that it was a much more sensible option for the US to curtail consumption than to allow its strategic oil reserves to further dwindle.

It is at this juncture the BJP-led NDA government is trifling with the sensitive industry and recklessly allowing private and foreign entry that could prove to be the thin end of the wedge later on, particularly when the investors are the likes of Warren Buffett. And all this not to prospect and develop more the country's potential by infusing fresh capital, not for developing technology and not for producing more, but to part bridge the deficit in the fiscal situation and that too after giving the unconscionable bonanza of tax concessions to the better off sections to the extent of Rs11,000 crore at the time of the recent interim budgetary exercise. And, the realisation through the present disinvestment exercise would not be very much more being estimated at Rs.14,083 crore. Knowledgeable observers say that the present price increase would mean a cost overrun of around $3.5 billion in the import bill from around $16.5 billion. Obviously the retail prices of oil products would be increased across the board after the elections. The increase would be stiff though the public sector units that are being destabilised in a big way would once again be asked to bear a considerable portion of the burden. That means already a big hole to the extent of Rs 3,500 crore in the disinvestment proceeds has already resulted even before the disinvestment exercise could be completed. The question arises all the more what for this stupid – or is it nefarious – exercise.

A recently published book Oil Factor by the leading financial adviser Stephen Leeb and Donna Leeb, mentions what is obvious to all excepting the most chronic among those believing that something would work out: "For the last 30 years, the price of oil has been the single most important determinant of the economy and the stock market." The authors claim that the oil price would soar above $100 a barrel "by the end of the decade, and possibly sooner". Such an eventuality, they say, would drag the global economy into a severe recession. As already said the price of oil per barrel is riding a 14 year high at $38 and is still moving up. Whether the oil price soars to $100 per barrel or not, it is not going to stay put at the present level. This gloomy scenario is sufficient to bring caution to the most incorrigible optimist and induce him to tread carefully in this domain. Such caution and humility is not to be expected from the NDA government or its disinvestment minister, Arun Shourie. The incorrigible brat that he is, he would call anyone expressing caution or disapproval of his ways as "idiotic", as he did the Comptroller and Auditor General of India in respect of his report that the sale of Centaur Hotel in Mumbai cost the exchequer Rs 145 crore.

Shourie let the cat out of the bag when confronted with the question whether such high discounts and going to the market with such large bundle of sensitive shares in February/March were unavoidable, particularly when the country was faced with a huge democratic exercise of the elections and whether an interim government should be doing this. He replied unabashedly: "There's very little that we can do as the disinvestment proceeds are required by North Block (Finance Ministry) by the end of the current fiscal to arrive at the magic figure of the fisc." (Frontline, March 26, 2004) Obviously the fiscal deficit of the centre was precarious and had to be dressed up or 'sexed up' to use the now famous BBC expression on Britain's dossier on WMD that Iraq allegedly possessed. This was required to add some credibility to the dubious 'India Shining' campaign.


The decision to opt for market oriented sale rather than strategic one preferred on earlier occasions is based on the feeling that the sale should be widely distributed rather than concentrated in the hands of a single or small group of investors, who could become potential threat to the industry itself. These are days of mergers and acquisitions and hostile takeovers. The investment climate in the west not being rosy, world investors are coveting plum assets in countries like India. A national government should be conscious of this reality and be extremely cautious. But that is not the forte of this reckless government that would trifle with irreplaceable national assets. How irresponsible the government has been is further illustrated by the following facts. The government opted for market sale abandoning its earlier preference of so-called strategic sale to a preferred private entity after this came in for severe public criticism. But all caution has been thrown to the winds and the bulk of the purchase has been made by private institutional investors, that too of foreign origin.

In an earlier exercise of disinvestment, the SEBI expressed doubts about the misuse of participatory notes that enabled hot money from unknown sources being pumped in. So this was abolished and it was insisted that the source must be known and routed through registered brokers. After the first few days of the exercise, when the FIIs were obviously playing coy and testing the market, the disinvestment minister Arun Shourie went into one of his tantrums and accused some forces of trying to sabotage the exercise by pulling the market down. Pray, what was he expecting from the market, a red carpet? Thereafter the government in a panic reaction coerced the SEBI to reintroduce the system of participatory note that it so recently banished with much fanfare and rhetoric. And the tap for foreign investors picking up the offered shares with glee commenced. At such discounts the over subscription is hardly an event to be celebrated. The government is blissfully ignorant what percentage was picked up by whom and what could be the source of the money that was pumped in! One thing is for certain; the FIIs were major participants who benefited.


The government also acted with total lack of concern in its choice of merchant bankers who managed the issues, the preferred ones being the likes of HSBC Securities, Kotak Mahindra Capital, ICICI Securities, DSP Merrill Lynch and JM Morgan Stanley. The Indian public sector banks that traditionally had mutually beneficial partnership in crude oil imports, including the SBI Caps were significantly brushed aside. It is a shame that the government displayed such utter lack of confidence in its own institutions in managing such high profile issues.

Answering the media after the ONGC issue was oversubscribed, a gleeful Shourie replied he was not certain whether Warren Buffett, one of the world's biggest and notorious investors, had made a bid for Rs 7,000 crore. But he added: "But if an astute investor like him has put money in ONGC, it is a vote for India." Asked about the possibility of a special allocation for high profile investment funds such as those owned by Buffet he said, "I certainly attach importance to such dominant investor funds. Investors like him give a two to three year time horizon for their investments." (The Hindu, March 6, 2004) What an appalling ignorance of the potential danger involved! And, Warren Buffett is one with close connections with American Oil interests and its military-industrial complex. Besides, as already mentioned, he revels in buying up economies and not just companies.


BALCO, Modern Foods, ITDC Hotels, Jessop, Paradeep Phosphate, HCI Hotels, VSNL. Maruti Udyog and now IBP, DCI, IPCL, CMC, GAIL and ONGC. The list is long and pertains to disinvestment alone. We are not even talking of other monumental scams like UTI, Ketan Parekh and stock market related ones, Tehelka, Coffin, Telgi exposure and the like. The list is long, very long indeed. But then was it not the same outfit that during its thirteen day sojourn in power approved the Enron deal providing for 16 per cent investment return with adjustment to currency fluctuation and a counter guarantee to boot. If it was a thirteen day wonder at that time, it is caretaker government at present. Then and now ethics is the farthest from its concerns.

With such lot of muck sticking all over, the BJP-led NDA government has the gall to go to the people with the claim of 'India Shining' and seek their votes. This time around however, the people will not be any more gullible and give them their just desserts and show the way out of office.

The Sale of India :
ONGC Disinvestment
CPI (M) Polit Bureau Statement
A U.S. financier, Warren Buffet, who heads an Investment Company called
Berkshire Hathaway, is reported to have been the main buyer, through his
nominees of course, of the ONGC shares which were sold on March 5.
Buffet has close links with the oil interests in California, and is part
of the inner circle of the new California Governor, Arnold
Schwarzeneger, whose elevation to office was ensured through a massive
use of money-power that helped to ease out the duly-elected former
Governor, before the completion of his term, through an apparently
democratic referendum. Buffet and the coterie around the new California
Governor also have close links with the "military-industrial complex"
(to use President Eisenhower's term) and with Right-wing and fascist
American oil interests have of late been trying to capture the world's
oil resources. The occupation of Iraq, the incursions into Central Asia,
the attempt to topple Hugo Chavez, and even the plans to redraw the
geographical boudaries of Saudi Arabia are all part of this global
effort. It is sad that the Indian government is voluntarily surrendering
the fate of our country to these global sharks by giving them control
over our own oil resources. It is even sadder that the Disinvestment
Minister actually expresses glee over the "oversubscription" of ONGC
shares when this is just a fall-out of the take-over of our oil
resources by American oil-interests.
Obtaining control over our own natural resources had been the result of
a bitter and prolonged struggle. In a sense the real decolnization of
the third world had occurred not with the handing over of formal
political power to local politicians, but when the third world had
wrested control over its own resources. Not surprisingly this wresting
control had invited bitter opposition from the imperialist powers,
leading to wars (as in the case of Egypt), coup de etats (as in the case
of Iran), and economic-diplomatic conflicts (as in the case of India).
Surrendering control over these resources back again to the imperialist
interests represents a reversal of decolonization with a vengeance. And
doing so for reasons as flimsy as "raising resources" when thousands of
crores of rupees have been handed out as tax cuts to the rich is an
unforgivable offence.
The argument that the proposed sale of ONGC equity does not represent
handing over control is untenable. When the sale is to a big foreign
buyer, retaining control would be well-nigh impossible. And as for the
glee over "oversubscription", in the case of any exhaustible resource
the notion of a
"normal price" of the equity (any excess over which can be called
"oversubscription") is absurd. The market can never express the true
value of these resources; they can only be, and must be, socially-owned.
That such a sale of India is being undertaken by a caretaker government
without any accountability to the Parliament and the people compounds
the crime and is simply unacceptable. The Polit Bureau of the CPI(M)
draws the attention of the Election Commission to invoke the code of
conduct under force currently to stop this illegal sale of India. The
Polit Bureau calls upon the Indian people to recognise the true
character of this Vajpayee government and force it through popular
struggles to rescind such anti-national moves.

Money from SAIL, ONGC divestment to be included for FY11

The Government will not meet the Rs17,237 crore shortfall in the disinvestment target of Rs40,000 crore that it set for FY11

Sneha Shah & Harini Subramani

Mumbai: The Rs67,000 crore raised through the 3G allocation has offered the government the flexibility to postpone two of its follow-on public offers (FPOs) by India's largest steel maker Steel Authority of India Ltd (SAIL) and Oil and Natural Gas Company Ltd.(ONGC) to the next financial year.

The earlier plan was to raise Rs20,000 crore by 31 March, 2011 by selling fresh shares.

Announcing the budget proposals on Monday, finance minister Pranab Mukherjee said while the government had raised around Rs22,144 crore in the current financial year ending 31 March, 2011 by selling shares of state owned companies, it will retain the same target of Rs40,000 crore as the target for next financial year ending 31 March 2012.

"A higher than anticipated realization in non-tax revenues has led us to reschedule some of the divestment issues planned for the current year," Mukherjee had said on Monday.

The Government will not meet the Rs17,237 crore shortfall in the disinvestment target of Rs40,000 crore that it set for this FY.

"With the current unfavourable market conditions, the government has pushed the SAIL and ONGC FPOs," an i-banker involved in the SAIL FPO had told Mint last week.

Through the SAIL and ONGC FPOs, the government had expected to raise around Rs8,000 crore and Rs12,000 crore respectively.

The government has sold shares in hydro power producer SJVN Ltd, Engineers India Ltd, Coal India Ltd, Power Grid Corporation, Manganese Ore India Ltd and Shipping Corporation of India Ltd. The total amount it raised in financial year ended 31 March, 2011 is almost 9% lesser that Rs25,000 crore raised by the Government in FY 2009-10.

PFC FPO issue price fixed at Rs203 a share
PTI   08:18 PM | May 16,2011
The price band for the FPO was fixed at Rs193-203 per share
Indian bankers may shun PSU share sales over low fees
Anirudh Laskar & Sneha Shah  11:46 PM | May 01,2011
At present, the govt offers 35 paise brokerage for every retail application and 30 paise for institutional ones
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Operating margins were at 22% in the fourth quarter, but came in at 32% when excluding AxiCorp
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Money from SAIL, ONGC divestment to be included for FY11
Sneha Shah & Harini Subramani   04:00 PM | February 28,2011
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CIL mega IPO steals the show in 2010
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IOC FPO likely by fourth week of Jan
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The government plans to offload 10% of its equity holding in the state-run refiner through the FPO and an equal stake would be diluted by the PSU company
Power Grid offer 10 times covered on day 3
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P. R. Sanjai   10:27 PM | October 27,2010
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1 2 3 4

National Investment Fund

On 27 January 2005, the Government had decided to constitute a 'National Investment Fund' (NIF) into which the realization from sale of minority shareholding of the Government in profitable CPSEs would be channelised. The Fund would be maintained outside the Consolidated Fund of India. The income from the Fund would be used for the following broad investment objectives:-

           (a)Investment in social sector projects which promote education, health care and employment;

Capital investment in selected profitable and revivable Public Sector Enterprises that yield adequate returns in order to enlarge their capital base to finance expansion/ diversification

Salient features of NIF:


The proceeds from disinvestment of CPSEs will be channelised into the National Investment Fund which is to be maintained outside the Consolidated Fund of India

            (ii)The corpus of the National Investment Fund will be of a permanent nature

The Fund will be professionally managed to provide sustainable returns to the Government, without depleting the corpus. Selected Public Sector Mutual Funds will be entrusted with the management of the corpus of the Fund


75% of the annual income of the Fund will be used to finance selected social sector schemes, which promote education, health and employment. The residual 25% of the annual income of the Fund will be used to meet the capital investment requirements of profitable and revivable CPSEs that yield adequate returns, in order to enlarge their capital base to finance expansion/ diversification

Fund Managers of NIF

The following Public Sector Mutual Funds have been appointed initially as Fund Managers to manage the funds of NIF under the 'discretionary mode' of the Portfolio Management Scheme which is governed by SEBI guidelines.

           i)UTI Asset Management Company Ltd.
           ii)SBI Funds Management Company (Pvt.) Ltd.
            iii)LIC Mutual Fund Asset Management Company Ltd.

Corpus of NIF

The corpus of the Fund is Rs.1814.45 crore being the proceeds from the disinvestment in Power Grid Corporation and Rural Electrification Corporation. The pay out on NIF was Rs.84.81 crore in the year 2008-09, Rs.248.98 crore in the year 2009-10 and Rs.107.32 crore so far during 2010-11. Average income of the first two years was 9.36%.

Use of Disinvestment Proceeds

The income from the Fund is to be used for the following broad investment objectives:


75% to finance selected social sector schemes, which promote education, health and employment


25% to meet the capital investment requirements of profitable and revivable CPSEs that yield adequate returns, in order to enlarge their capital base to finance expansion/diversification

However, in view of the difficult economic situation caused by the global slowdown of 2008-09 and a severe drought that was likely to adversely affect the 11th Plan growth performance, the Government, in November 2009, decided to give a one-time exemption to utilization of proceeds from disinvestment of CPSEs for a period of three years – from April 2009 to March 2012 – i.e. disinvestment proceeds during this period would be available in full for meeting the capital expenditure requirements of selected social sector programmes decided by the Planning Commission/Department of Expenditure. The status quo ante will be restored from April 2012.
Accordingly, from April 2009, the disinvestment proceeds are being routed through NIF to be used in full for funding capital expenditure under the social sector programmes of the Government, namely:-

 (i)Mahatma Gandhi National Rural Employment Guarantee Scheme
 (ii)Indira Awas Yojana
 (iii)Rajiv Gandhi Gramin Vidyutikaran Yojana
 (iv)Jawaharlal Nehru National Urban Renewal Mission
  (v)Accelerated Irrigation Benefits Programme
 (vi)Accelerated Power Development Reform Programme

Oil and Natural Gas Corporation

From Wikipedia, the free encyclopedia
oil & Natural Gas Corporation Limited
Type State-owned enterprise
Public (NSEONGC,BSE500312)
IndustryOil and Gas
Founded14 August 1956
Key peopleA. K. Hazarika
(Chairman & MD)
Natural gas
Revenueincrease US$ 22.599 billion (2010)[1]
Operating income increase US$ 6.752 billion (2010)[1]
Net income increase US$ 4.381 billion (2010)[1]
Total assets increase US$ 37.153 billion (2010)[1]
Total equity increase US$ 22.887 billion (2010)[1]
Employees32,826 (2010)[2]
ONGC platform at Bombay High in theArabian Sea

Oil and Natural Gas Corporation Limited (ONGC) (NSEONGCBSE500312) is an Indian state-owned oil and gas company headquartered at Dehradun, India. It is a Fortune Global 500 company ranked 413,[2] and contributes 77% of India's crude oil production and 81% of India's natural gas production. It is the highest profit making corporation in India, according to filings with the BSE of latest quarter results External Link. It was set up as a commission on 14 August 1956. Indian government holds 74.14% equity stake in this company.

ONGC is Asia's largest and most active company involved in exploration and production of oil.[3]It is involved in exploring for and exploiting hydrocarbons in 26 sedimentary basins of India. It produces about 30% of India's crude oil requirement. It owns and operates more than 11,000 kilometres of pipelines in India. It is one of the highest profit making companies in India. In 2010, it stood at 18th position in the Platts Top 250 Global Energy Company Rankings.[4]



[edit]ONGC Videsh

ONGC Videsh is the international arm of ONGC. ONGC has made major investments in Vietnam, Sakhalin and Sudan and earned its first hydrocarbon revenue from its investment in Vietnam.

[edit]International rankings

  • ONGC has been ranked at 198 by the Forbes Magazine in their Forbes Global 2000 list for the year 2007.[5]
  • ONGC has featured in the 2008 list of Fortune Global 500 companies at position 335,[6] a climb of 34 positions from rank of 369 in 2007.
  • ONGC is ranked as Asia's best Oil & Gas company, as per a recent survey conducted by US-based magazine 'Global Finance'
  • 2nd biggest E&P company (and 1st in terms of profits), as per the Platts Energy Business Technology (EBT) Survey 2004
  • Ranks 24th among Global Energy Companies by Market Capitalization in PFC Energy 50 (December 2004).
  • Economic Times 500, Business Today 500, Business Baron 500 and Business Week recognizes ONGC as most valuable Indian corporate, by Market Capitalization, Net Worth and Net Profits.[7]

[edit]See also


  1. a b c d e "2010 Form 10-K, Oil and Natural Gas Corporation Limited"Hoovers. 26 July 2010. Retrieved 24 November 2010.
  2. a b "Fortune Global 500 Rankings"Fortune. 26 July 2010. Retrieved 24 November 2010.
  3. ^ "ONGC beats China's CNOOC to become Asia's No.1 E&P firm". SINGAPORE: The Economic Times. November 3, 2010. Retrieved 3 November 2010.
  4. ^ Platts, Nov 2, 2010. "Platts Top 250 Global Energy Company Rankings". Retrieved 2010-11-03.
  5. ^ "The Global 2000"Forbes.
  6. ^ Fortune 500
  7. ^ ONGC :: Investor Centre :: Profile

[edit]External links

Prime Minister's Council on TRADE & INDUSTRY

How to get Disinvestment Going
Building India's Future

Report of the Special Subject Group

Members :

Shri GP Goenka
Shri Rajeev Chandrasekhar
Shri Nusli  Wadia 



How to Get Disinvestment Going

"Building India's Future"


1.  Why disinvest?

Since reforms began in 1991, this is the first time after 1993-94 that one feels that reforms are going to go forward. Except industrial delicensing and some changes in the financial sector, almost nothing has so far happened on domestic economic reforms. The second generation of reforms is about domestic economic reforms. And domestic economic reforms have to begin with public sector reform and privatization. Without this as a prerequisite, nothing else is possible. Nothing else can happen. Modern Foods is a good beginning. This report will express some skepticism about what is proposed for Indian Airlines. But more than these two, what has been reported in the media about the government's intentions is the really positive signal. Why is disinvestment necessary?


v     Who are shareholders of public sector undertakings (PSUs)?  Indian citizens are, the government only acts on their behalf.

v     As percentage of GDP (gross domestic product), does the government need to spend so much?  The government in India spends 32.6% of GDP.  Indonesia spends 16.2%, South Korea 17.8%, Malaysia 23.2% and Thailand 18.6%.

v     Only 3.5% of GDP is spent on education.

v     If government expenditure is reformed, 5.1% of GDP can be saved – 1.5% from privatization and repurchase of public debt, 0.6% from fertilizer subsidies, 0.2% from PDS, 0.3% on public administration and 2.5% from smaller transfers to States.  This is an additional expenditure that can be made on primary education and rural health care.

v     The government subsidizes losses of almost Rs 80 billion per year made by around 120 Central PSUs.

v     Each individual citizen pays Rs 80 a year, each household pays Rs 400 a year.  Are 6 million jobs in PSUs worth it?

v     The government has no right to decide, shareholders must decide.

  • The future of India is at stake.

  • India's balance sheet is in a mess. It is obvious that over the last 50 years huge amounts of Public money have been invested into the public sector. Hundreds and thousands of Crores of Public money has been invested into various Public Sector Units. However, these investments have not resulted in creation of value on the balance sheet. All in all investments have yielded very little or no return on investments, but creating a huge hole in the balance sheet. This huge hole in the balance sheet is being further exasperated through the excessive borrowings every year and the resultant interest burden

  • India's revenue – Profit & Loss statement is also in a mess If one adds up four items of current revenue expenditure – interest payments, defence expenditure, wages and salaries of government employees and subsidies – and compares this figure with total current revenues (tax plus non-tax), there already is a deficit. That means that even if the government stops functioning and ceases to do anything else, there will be a deficit.

  • This is not tenable. The government should have a surplus on the revenue account to finance a deficit on the capital account. Capital expenditure is what the government should be doing. But there is no money for this. The government should be spending on infrastructure – social and physical. The government should be spending on primary education and rural health care. But there is no money for this.

  • The situation is worse. A deficit can only be financed through borrowing, which pushes up interest rates and crowds out necessary private sector investments, or through monetisation of the deficit and resultant inflation. Inflation is the most regressive form of taxation that there is. It hurts the poor more than the rich, the poor don't have inflation-indexed incomes. The government doesn't have a treasure chest. The poor will pay through higher interest rates or higher inflation.

  • Inefficient PSUs are largely responsible for the macroeconomic crisis India faced in the 1980s, a phenomenon that spilled over into a balance of payments (bop) crisis in 1990-91.

  • Some of these PSUs shouldn't have existed in the first place. That is, they are sick private sector units that should have been closed down. Instead, to protect a few existing jobs, they were absorbed into the public sector.

  • It is necessary of course to point out that the public sector can mean various things. The government itself (Centre or State) sometimes runs undertakings, these are PSUs proper. Then there are departmental enterprises like railways, post offices or telecommunications, which are not separately incorporated, but are run as government departments. Finally, there are those that are separately incorporated and are run as independent companies. Since such distinctions are not important for this report, when the expression public sector is used, it means all three types.


    v     A 7.5% growth rate means 11 million new jobs a year.

    v     A 6% growth rate means 9 million new jobs a year. 

    v     Lack of PSU reform implies a loss in growth rate from 7.5% to 6% - a loss of 2 million jobs a year.

    v     In three years, the country can recover the entire present employment in PSUs.

  • A large chunk of revenue expenditure is interest payments on past government borrowing. If the interest payment problem can be solved, there will no longer be a fiscal deficit problem and the government will have money to spend on capital expenditure or infrastructure. In a country like India, there cannot be a moratorium on interest payments. While borrowing at market-determined interest rates and curbing present government expenditure disciplines future borrowing, the only solution to the debt overhang of earlier borrowing is disinvestments that can be used to retire public debt. That is what the ordinary citizen stands to gain from successful disinvestment.

  • This argument can be reinforced. PSUs (public sector undertakings) were not created only for the purpose of providing employment.1  They were meant to generate surpluses that flow into the government's non-tax revenue.2   This hasn't happened. Disinvestment will improve PSU performance, it will improve PSU competitiveness. Those who have jobs in PSUs will enhance their job and economic security. Disinvestment accomplishes more.


    v    Who will be satisfied with a return on capital of between 2 to 5%?

    v    That's the figure for PSUs.

    v     If one excludes the ones that are monopolies, the rate of return is      lower still.

    v    The government borrows at 12% for this rate of return and citizens pay for this stupidity.

  • Inefficient PSUs also constrain the efficient performance of the private sector, since the private sector requires inputs and infrastructure services provided by monopoly suppliers in the public sector. Not everyone can have a job in a PSU. Disinvestment improves efficiency and pushes up growth rates. Growth provides jobs and employment. If the Indian economy can grow at around 7.5%, the backlog of unemployment will begin to disappear.

  • These points were made with the Central government in mind and the Central government has equity in around 240 PSUs, 27 banks and 2 insurance companies. But at the level of the States, where there are around 1000 PSUs3, the situation is even more serious. Most States are bankrupt. They don't have money to pay wages and salaries of government employees, forget education and health care, or infrastructure.

  • India is bound to have a current account deficit in the foreseeable future. This current account deficit has to be financed through capital account inflows. Such inflows can be borrowing or non-debt creating inflows like foreign direct investments (FDI). As the East Asian experience also demonstrates, non-debt creating capital inflows like FDI are preferable. Disinvestment helps to attract global capital. In fact, it helps to attract domestic capital as well.

1  Coal India employs 700,000 people, of whom, one-third are redundant.  In the entire governm ent, 2 million people are believed to be redundant.  This is out of a total employment of 20 million, of which, 6 million is in PSUs, 3 million in the Central government, 7 million in State governments and 2 million in local bodies.

2   The cash value of most PSUs is more than the present value of profit flows, even if the cash value is evaluated on book value of assets.  The conclusion is stronger if valuation is done at current value.  Perhaps it is necessary to mention that some loss-making PSUs also have positive market value.

3   Roughly half of these make losses.  Of the ones that make losses, roughly half have eroded their net worth and these figures are only for the Centre.


bif1.jpg (60606 bytes)

PSUs have never earned profits that have exceeded 6 per cent of capital employed (Table 1)4. Their return on capital has been between 5 and 7 percentage points below the rate of interest on long term government bonds. That is just one measure of the lost opportunity cost of return.

Table 1: Profitability of Indian PSUs








No of PSUs







PAT as % of CE







PAT as % of GS







No of profitable PSUs







No of non-profitable PSUs









These poor returns have occurred despite huge rents that accrue from government monopolies like petroleum and power. Once these are netted out, PSUs show negative return (Table 2)5.






4  Public Enterprises Survey. PAT = Profits after tax; GS = Gross sales; CE = Capital employed.

5  L. Bhandari and O. Goswami, The Wasted Years: The Public Sector in India, National Council of Applied Economic Research, forthcoming, 2000.


Table 2: Differential PSU profitability (%)

PAT/Net Sales







All non-service PSUs







Less petroleum


- 0.1

- 1.2




Less petroleum & power

- 2.4

- 2.3

- 3.4

- 0.2



Less petroleum, power, coal & lignite (pure manufacturing PSUs)

- 5.3

- 5.4

- 6.9

- 2.3

- 2.4

- 4.3

  • The controlling shareholder of PSUs has distinctly different objectives. Commercial viability, profitability, cost minimization, optimal investment decisions rarely figure among the concerns of a typical Member of Parliament or a Minister. Next in the hierarchy of shareholders' representatives comes the civil servants. Bureaucrats specialize in proper procedures. This creates an inconsistency between the organizational forms of governments and those of modern financial and industrial entities: governments and their agents are process oriented, whereas firms have to be result oriented. The mismatch gets exacerbated by a civil servant's aversion to risk taking.

  • Given such non-commercial objectives of the representatives of shareholders, most chief executives of PSUs quickly adopt the line of least resistance, develop the 'don't rock the boat' syndrome. Thus, organizational changes are not made, erring staff remain undisciplined, loss-making plants are neither down-sized nor closed, wages are not linked to productivity, and redundant workers are not retrenched.

  • Above all this, there is Article 12 of the Constitution of India, which defines 'the State' as "the Government and Parliament of India and the Government and Legislature of each of the States and all local or other authorities within the territory of India or under the control of the Government of India". Since most PSUs have more than 50% government ownership, they fall under the ambit of 'the State'. This has affected PSUs in several adverse ways.

  • All PSUs are expected to achieve a wide variety of non-commercial objectives which are imposed by the Ministries and the Parliament.

  • There is an annual audit by the Comptroller and Accountant General (CAG) in addition to the audit by the statutory auditor. The area where CAG audits inflict the greatest ex antedamage is in purchases and tenders. PSU managers invariably veer towards selecting the lowest bid, even when they know that the quality is poorer. Innumerable CAG allegations of financial impropriety only on the basis of rejecting the lowest bid have taught PSU managers that propriety dominates profitability.

  • There are constraints on appointment of senior management personnel, which can only be done through the Public Enterprise Selection Board (PESB) and, thereafter, clearance from the Department of Personnel, the Home Ministry, and, in many instances, by the Office of the Prime Minister. This has led to delays, non-appointment of CEOs and executive directors, and excessive emphasis on seniority — which means that very few CEOs can enjoy their full term.

  • Since PSUs are interpreted as 'the State', they are subject to writ petitions to the Supreme Court under Articles 32, and High Courts under Article 226 of the Constitution.

  • Again by virtue of being considered as servants of 'the State', managers of PSUs are often subjected to criminal investigation by the Chief Vigilance Commissioner and the Central Bureau of Investigation.

  • State status limits managers from down-sizing plants, retrenching or re-deploying employees.

  • Finally, the directors of PSUs have little autonomy in finalizing investment decisions.

For a while, governments tried the system of having target-setting memoranda of understanding (MOUs) between PSUs and their administrative ministry. The idea was to make a PSU achieve greater efficiency without diluting the government's majority ownership and control. Despite the Department of Public Enterprises showing high 'success' rates, the MOUs failed.  First, there is a sample selection bias: virtually no loss-making PSU signs a MoU. Thus, over 55% of the PSUs remain outside the MOU ambit. Second, the targets are set low enough to ensure achievement. The post-MOU performance of the so-called 'excellent' and 'very good' achievers is no better — and often worse — than before.

                               6  Bhandari and Goswami (2000).

2. Tactics and strategy

There is a difference between tactics and a strategy. So far, disinvestment has been driven by the tactical compulsion of financing the fiscal deficit. This is perhaps the reason why the word privatization has not been used until recently, the word disinvestment tending to imply a soft choice. This is in contrast to a country like Britain, where privatization and disinvestment were driven by a conscious recognition that this improves efficiency.7  However, there are no soft choices. As countries like Peru, Brazil, Chile, France, Morocco, Poland, Indonesia, Malaysia, the former German Democratic Republic, the Philippines, Pakistan, Sri Lanka, Taiwan, Indonesia and New Zealand have recognized, the fiscal deficit or releasing resources for social or infrastructure sectors cannot be the only reasons for disinvestment. Other reasons are improved efficiency and competition and broadening and deepening the capital market.

PSU reform attempts go back to the 1980s, where there was some attempt to increase functional autonomy of PSUs, without privatization and disinvestment. Post-1991, there were ad hoc equity sales in around 50 PSUs, with equity sales ranging from 5% to 49%. There was a hang-up about letting go of more than 51% equity.8   This led to some improvement in efficiency and pre-tax profit as a percent of capital employed in PSUs more than doubled from the base figure of 3.4% in 1990-91.This illustrates what is possible with full-fledged reforms.

7   However, the Rangarajan Committee Report (Report of the Committee on Restructuring Public Enterprises), 1992, did mention improved efficiency as an objective.

8   As a parallel move, fresh issues of equity in global markets for expansion also diluted government equity.

9   See detailed figures in M.S. Ahluwalia, "India's Economic Reforms: An Appraisal" in Jeffrey D. Sachs, Ashutosh Varshney and Nirupam Bajpai edited, India in the Era of Economic Reforms, Oxford University Press, 1999.



bif2.jpg (52505 bytes)



The hang-up about giving up more than 51% equity was possibly given up with the setting up of the Disinvestment Commission in 1996, a commission that has now been wound up. The Disinvestment Commission examined 50 PSUs, ostensibly non-strategic and non-core, where government equity could be brought down to zero and management handed over. In most cases, it is now accepted that government equity can be brought down to 26%. The 51% figure is important. Any firm where the government has more than 50% equity is legally interpreted as part of Article 12 of the Constitution and is accountable to administrative ministries, government audits and Parliament. There will also be the Central Vigilance Commission (CVC) and the Central Bureau of Investigation (CBI). Moreover, with a 51% hang-up, new private shareholders will always be a minority on the boards. Naturally, bids would have been higher had the government agreed to dilute equity to 26% in a time-bound fashion.

However, driven by tactical considerations, the entire disinvestment process so far has been left to bureaucrats who do not necessarily have a perfect understanding of how capital markets operate or how international investor decisions are taken. Therefore, issuance is piecemeal, there are long delays in appointment of lead managers and finalization of IPOs (initial public offerings) and flawed criterion used in selection of lead managers. There has been lack of transparency, a fact that reports of the Comptroller and Auditor General (CAG) of India have also commented on. It should not be surprising that foreign investments in the disinvestment process in India are a trickle compared to global investments that flow into disinvestment processes world-wide. It is remarkable that not a single PSU is yet under autonomous private management and the cross-holdings by oil companies is a particularly perverse illustration of this phenomenon.

It is only recently that the government has become a bit more serious about disinvestment. As the following will make clear, this report favours what has been done for Modern Foods, but not what has been done for Indian Airlines, unless that is a temporary step.

Unlike what happened historically, a strategy will have a proper vision and plan of action.



First, the management and responsibility of the entire disinvestment process should exclusively be with the Disinvestment Ministry (DM). Setting up such a DM ensures transparency and fairness and also contributes to a comprehensive approach to disinvestment, as opposed to ad hoc decisions. This is one reason why most developing countries have opted for formal structures. Other ministries can be co-opted only if it is absolutely necessary. The Secretary of DM must have sufficient capital market experience. For each proposal, the DM will be responsible for taking the proposal to a Cabinet Committee on Disinvestment that will consist of the Prime Minister, the Finance Minister, the Disinvestment Minister and any other economic ministry that may be necessary from the point of view of the specific proposal. The DM will be a specific pre-determined target of capital that will be raised over a fixed time horizon, say the next two years. Thus, for the next two years, the DM will develop a plan and course of action that addresses individual companies and sectors and draws up a strategy for each. The strategy need not be the same across all companies or across all sectors. To ensure a realistic and successful course of action, the DM will have an Advisory Board. The Advisory Board will have as members, individuals who have sufficient capital market and international investor experience. Examples are representatives from financial institutions, management consultants, merger and acquisition (M&A) experts and private companies. It is important to ensure that the DM and politicians and bureaucrats involved in the disinvestment process are granted immunity from prosecution and investigation by the Central Bureau of Investigation (CBI) or Central Vigilance Commission (CVC). If the process is transparent, as is argued in this report, the need for these will not arise. In this framework, there is no need to revive the Disinvestment Commission. It has no further role to play.


v     Infant industry

v     Heavy industry based development strategy

v     Right distribution of ownership of capital

v     Lack of resource

v     No technical competence in private sector

v     Under-developed capital market

v     Balanced regional development

v     Employment promotion

v     Protection

Second, the candidates for disinvestment must be chosen carefully. Stronger PSUs are the ones that must enter the market first, in the immediate short run (the first four years). This will whet the appetite of investors and make India a success story, a phenomenon that tends to snowball. Creation of markets is in fact an indirect positive fallout of successful disinvestments. In the medium term however, all government companies that are non-strategic should be candidates for disinvestment. Strategic or core must be carefully defined. Other than arms, ammunition and defence equipment, atomic energy, radioactive minerals and railway transport, there is nothing else that can appropriately be defined as strategic or core. Therefore, in every other case, there is no reason why government equity should not be brought down to 26% and this includes banking, insurance, aviation, the petroleum sector and tourism. 26% equity is enough to ensure that the government has some influence over corporate decision making. The only caveat to 26% can be if prior privatization of management enhances valuation. The disinvestment process is best managed if there are a defined number of large transactions per year, as opposed to a large number of small transactions. Perhaps some overall restructuring of PSUs through mergers and acquisitions (or even winding up) is therefore necessary prior to disinvestment.

Stated differently, one of the first decisions the DM has to take is on the extent of disinvestment. Will there be total disinvestment? Will there be partial disinvestment with managerial control retained by the State? Will managerial control be handed over to a strategic investor, with only minority share holding granted to such an investor? As the statements above indicate, this report argues for total disinvestment. The selling of bundles of portfolios of shares will not work. Moreover, selling lots of 5 or 10% is counterproductive because buyers know that further shares will be offered. The mindset that a PSU, even if does not make losses, is a going concern must change. Instead, the block of assets must be sold. Whether the enterprise will continue to be a going concern or not, is for the new management to decide.

There is some urgency in doing this. Before liberalization, many PSUs were monopolies. They are now being exposed to competition. This process will intensify as further liberalization of trade (cuts in tariffs and elimination of quantitative restrictions) and investments (foreign direct investments) take place. To get a good value for these PSUs, the time to disinvest is now. Not later.

Third, the present system of selecting lead managers on the basis of bidding for fees is entirely unsatisfactory. Second-best lead managers are chosen and are often not interested, or do not deliver their best resources, to issuances. Globally, there are only 5 or 6 top lead managers. All these should be empanelled and additions to this panel can be through co-managers from smaller investment banks. The norms for fees can be fixed and such norms can be suggested by a team of financial institutions that have requisite expertise. These empanelled lead managers can be allotted initial issuances in random fashion and further issuance mandates can be based on performance (over-subscription, market-making, pricing). All this will eliminate delays in the process of selecting lead managers.

Fourth, the process of disinvestment need not be completely capital market driven, as it is today. The capital market focus, the small percentage of equity disinvested and an overall lack of clarity result in a less than optimum value being derived from the disinvestment process. There are nine, not mutually exclusive, options possible for the disinvestment process and PSU reform and all nine can be used to ensure flexibility and maximum value from disinvestments. Often, the choice may be dictated by whether the eventual shareholding is meant to be narrow or wide. These nine options are the following. First, there can be strategic majority sales to a partner and global trends show that there is more realizable value (about 20 to 30% more) through strategic sales to companies in the same sector. 51% or even 100% equity can be sold to such strategic buyers. Second, there can be open public auctions for units to bidders, with or without pre-qualifications. However, sales should not be only to public sector financial institutions and their subsidiary mutual funds. Third, there can be public sales through stock exchanges in the domestic capital market. One can continue with capital market disinvestments, except that larger shares of equity must be off-loaded through initial IPOs. It is necessary to privatize management before IPOs for value to be maximized. Global trends are that 20 to 30% more value is obtained through disinvestments after privatization of management than before privatization of management. Fourth, it is possible for PSUs to enter into joint ventures (JVs) with the private sector and transfer their business for stock in the new enterprise. However, in such cases, shareholder agreements between the private company and the PSU must over-ride government decision making or policy. Once the JV route has been followed, capital market transactions are possible. Fifth, GDRs/depository receipts can be issued in international capital markets.10   Sixth, as an imperfect framework of disinvestments, there can be management contracts for limited periods of time with private operatorsSeventh, there can be sales in blocks. Eighth, despite all attempts at reform, there will be some clear cases of winding up. Ninth, there can be mergers and restructuring. For Central PSUs, this report later gives suggestions about what modality can be attempted for which PSU.

Since employees and Indian citizens in general have to be part of the disinvestment process, employees must first be given up to 10% of stock at par or at discounts on market values. This can be spliced with deferred payment for employees and loyalty bonus of shares if shares are held for a minimum period. In addition, a small additional IPO or up to 10% of capital can be offered to Indian citizens in individual capacity. There can be a caveat that a single individual cannot have more than 1000 shares. This will eliminate some resistance to disinvestment and employees or others will become part of the process that creates more value for their company. PSUs will move from being employment creators for those who are employed with the company to enterprises that create wealth for their share-holders, the citizens of India. This is what should have happened with PSUs in the first place. In addition, it may be necessary to ensure that willing employees are provided attractive severance packages. Without the possibility of surplus manpower being shed, bids will be marked down. The role of a media campaign in generating consensus also needs to be emphasized.

What is the need to privatize profit making PSUs?

v    Because it fetches better prices.

v    Unless an enterprise is in the strategic sector and        unless          the market structure is a monopoly,   profit    making    is    an          argument for disinvestment – not an     argument against it.

There will continue to be a problem with loss-making PSUs, many of which historically are loss-making private sector enterprises that should have been closed down, but were nationalized in the 1970s. The Board for Industrial and Financial Reconstruction (BIFR) is supposed to examine these and recommend ones that cannot be revived. Not a single one has been closed down, primarily because of court intervention on labour grounds. While loss-making PSUs that have positive market value can be sold, this is also true of loss-making PSUs that have eroded their net worth,11   provided that the assets are sold as a block. There may be a few cases where actual closing down is necessary. Properly used, the National Renewal Fund (NRF) can be used to retrain and re-deploy people who are retrenched because of closing down. However, the NRF cannot be equated with a Voluntary Retirement Scheme (VRS). As originally stated, the NRF was supposed to be used for VRS, retraining and unemployment insurance. Only the first has come about. The proceeds of disinvestment should not go into the Consolidated Fund of India. They have to be used to retire the public debt or for a genuine NRF (from which Rs 1000 crore can be earmarked for VRS). In fact, the present value of future wage and pension flows of workers is easy to compute. From funds obtained through sales, this amount can be set aside, so that a worker who loses a job does not lose the income security.

There has to be fresh legislation to ensure fast transfer or leasing of government land and user rights. This can even provide for special tribunals, without violating Article 14 of the Constitution. Otherwise, the entire process can get stuck in the court system.

10 In passing, there should be greater resort to the American Depository Receipt (ADR) route, which has greater depth and can therefore offer higher valuation.

11   A rough figure will be 60 at the Central level and at least 60 at the State level.

3.  Sequence and transition

For the entire mechanism and process to be credible, two units must be sold by 31 March 2000. Thereafter, there should be a clear target for the next two years. 12 billion US dollars over the next two-year time span is a reasonable target, that is, Rs 52,000 crores.

It is not possible for this report to be specific about the time sequencing of disinvestment. However, some principles can be mentioned. First, there is urgency about sectors where monopoly is being threatened because of liberalization. Second, the government is generally bad in areas where there is a service orientation. Therefore, services, manufacturing and trading are sectors where the initial flush of disinvestments can take place. This emphasis on service orientation also explains why banks have to go first.

Barring the strategic sectors, no more than 26% government equity need be retained. But in the interim period, the government might wish to continue as the single largest shareholder. Retaining government shareholding directly will constrain PSUs because of interference from government ministries, Parliament and government audits. Once government equity is below 50%, decisions on appointing management must be left to Boards and not to Joint Secretaries in administrative ministries. Another advantage of bringing equity down to 26% is avoidance of the Central Vigilance Commission (CVC), the Central Bureau of Investigation (CBI) and the Prevention of Corruption Act (PCA). Section 13 of the Prevention of Corruption Act defines that a public servant is guilty of criminal misconduct (corruption) if a decision taken by the public servant benefits a third party, unless it can be proved that this benefit to the third party is in the public interest. Any decision taken benefits a third party and it is impossible to prove that this benefit to the third party is in the public interest. Therefore, public servants become risk averse and don't take decisions. There is no point asking PSUs to function along commercial principles as long as such a section continues.

Ideally, until the government shareholding is brought down to below 51%, there should be a National Shareholding Trust as a non-profit trust under the Societies Registration Act or the Companies Act. The entire government shareholding can be transferred to this Trust. On the advice of the DM, the Trust will sell equity in block sales to banks, financial institutions or mutual funds or directly to retail investors. In the interim, there can be a stipulation that shares held by the Trust will not drop below the 26% threshold. The Trust will be preferable to a Special Purpose Vehicle as it will take the enterprise out of the purview of the CVC, CBI, PCA, government ministries, Parliament and government audits. However, if this is not done and government shareholding is more than 50%, the enterprise must still explicitly be taken outside the CVC, CBI, PCA, government ministries, Parliament and government audits. The salaries paid to management must also be delinked from government salary structures. Management salaries have to be decided by boards and by no one else.

There has to be a proper competition policy to cover unfair and restrictive trade practices and issues like transfer pricing. The competition policy must also cover mergers and acquisitions. At present, no prior approval is required for mergers and acquisitions, although that is the practice in many developed countries also. Subsequent de-monopolization through breaking up involves significant transaction costs. It is a better idea to require prior approval.

One must also be careful in some service sectors. With many individual countries, service sector liberalization depends on reciprocity clauses – banking and aviation are examples. These may have to be renegotiated if government equity drops below 50%.

Incidentally, there is no reason to exclude banking from disinvestments, although changes in the Banking Regulation Act will be necessary. Banks, when privatized, can have certain guidelines on lending for priority sectors. But these guidelines must be set out by the Reserve Bank in the offer letter itself, and not introduced subsequently.

In line with these points, this report suggests the following modalities for Central PSUs. In the annexure table, "X" indicates that the route is appropriate for a PSU, the absence of "X" indicates that for that PSU, that route is not appropriate.

4.  The road map

  • Explain to citizens the benefits of disinvestment – more expenditure on education, health care and infrastructure, higher growth, more employment, lower interest rates, lower inflation and costs of the present status quo. Use media campaigns.

  • Disinvestment should be driven by efficiency, rather than fiscal deficit compulsions.

  • There should not be ad hoc sales, nor any hang-ups about clinging on to 51% equity. With a 51% threshold level, new private shareholders will be in the minority on boards and realizations will be higher without this limit.

  • If government equity is brought down to 26%, the enterprise will no longer be "State" as defined by Article 12 of the Constitution. It will thus be outside the ambit of the Central Vigilance Commission (CVC), the Central Bureau of Investigation (CBI), administrative ministries, government audits and accountability to Parliament.

  • Disinvestment cannot be left to bureaucrats who have no experience of capital markets or international investor sentiments. They will delay appointment of lead managers, finalization of IPOs (initial public offerings) and develop non-transparent processes. As a result of this, not a single PSU has changed hands since 1991.

  • There must be Disinvestment Ministry (DM), other ministries can be co-opted only if absolutely necessary. The Secretary of DM must preferably have capital market experience. DM will be responsible for taking the proposal to a Cabinet Committee on Disinvestment consisting of the Prime Minister, the Finance Minister, the Disinvestment Minister and any other economic ministry considered necessary. There is no need for a Disinvestment Commission. The DM will have an Advisory Board consisting of members who have sufficient capital market and international investor experience and there will be a transparent and strategic approach.

  • The DM will have a specific pre-determined target of capital that will be raised over a fixed time horizon, such as, 12 billion US dollars over the next two years.

  • The DM and politicians and bureaucrats involved in the disinvestment process must be granted immunity from prosecution and investigation by the Central Bureau of Investigation (CBI) or Central Vigilance Commission (CVC). If the process is transparent, the need for these will not arise.


    v      Monopoly market, efficient PSUs and high social obligation sectors – retain 51% initially

    v      Monopoly market, efficient PSUs and low social obligations – down to 26%

    v      Competitive market, efficient PSUs and high social obligations -– retain 26%

    v      Competitive market, efficient PSUs and low social obligations – down to 0%

    v      Monopoly market, inefficient PSUs and high social obligations – management contracts

    v      Monopoly market, inefficient PSUs and low social obligations – joint ventures

    v      Competitive market, inefficient PSUs and high social obligations – down to 0%, sales as block

    v      Competitive market, inefficient PSUs and low social obligations – down to 0%, sales as block or close down

  • Candidates for disinvestment must be chosen carefully by the DM. The stronger PSUs must enter the market first, so as to create an appetite for investors. Before this, there may be a need for mergers and acquisitions and winding up among existing PSUs.

  • All non-strategic government companies should eventually be brought down to 26% government equity, unless prior privatization of management ensures better valuation. 26% is enough to ensure influence on managerial decision making. There must be a defined number of large transactions per year, not a large number of small transactions.

  • Arms, ammunition, defence equipment, atomic energy, radioactive minerals and railway transport are the only strategic sectors. Everything else can eventually be divested, including banks.

  • The present system of selecting lead managers on the basis of bidding for fees is unsatisfactory. Globally, there are only 5 or 6 top lead managers and they can constitute the panel.

  • Empanelled lead managers can be allotted initial issuances in random fashion and further issuance mandates can be based on performance (over-subscription, market-making, pricing).

  • The disinvestment process should not be capital market driven and all nine forms of disinvestment and PSU reform can be judiciously used by the DM – first, strategic majority sales; second, open public auctions for units to bidders, with or without pre-qualifications; third, domestic public sales through stock exchanges; fourth, joint ventures, where shareholder agreements must override government decisions; fifth, GDRs/depository receipts; sixth, management contracts; seventh, block sales; eighth, winding up; and ninth, mergers/restructuring.

  • Until government shareholding is brought down to below 51%, there should be a National Shareholding Trust as a non-profit trust under the Societies Registration Act or the Companies Act. The entire government shareholding can be transferred to this Trust. On the advice of the DM, the Trust will sell equity in block sales to banks, financial institutions or mutual funds or directly to retail investors. The Trust will be preferable to a Special Purpose Vehicle as it will take the enterprise out of the purview of the CVC, CBI, Prevention of Corruption Act, government ministries, Parliament and government audits.

  • However, if this is not done and government shareholding is more than 50%, the enterprise must still explicitly be taken outside the CVC, CBI, Prevention of Corruption Act, government ministries, Parliament and government audits. Managerial salaries should be delinked from government salaries.

  • To address the political economy of the disinvestment process, employees can be given 10% of stock at par or at a discount on the market value. There can also be an additional IPO of up to 10% to citizens in individual capacity, with a stipulation that no individual can hold more than 1000 shares.

  • PSUs that have eroded their net worth must be closed.

  • Disinvestment proceeds should not flow into the Consolidated Fund of India and be used to finance revenue expenditure. A stipulated percentage can be earmarked for capital expenditure and building physical and social infrastructure. Another percentage can be used for retiring public debt. The remainder, which should be a smaller percentage, can be used for a National Renewal Fund, which should not be equated with a Voluntary Retirement Scheme only.

  • There must be fresh legislation for the transfer of government land and assets. Special tribunals to dispense with time-consuming court procedures need to be set up.

  • Enact a competition policy and renegotiate reciprocal service sector agreements where necessary.



Strategic sales

Open public auctions to select bidders

Domestic capital market sales to public

Joint ventures


Management contracts

Block sales

Winding up

Mergers, restructuring

Air India, Pawan Hans





Indian Airlines






Airports Authority







Bank of Baroda, Bank of India, Canara Bank, Corporation Bank, SBI, Syndicate Bank, PNB







All other banks









Bharat Earth Movers













BPCL, HPCL, IPCL, IBP, Bongaigaon Refinery, Cochin Refineries




Cement Corporation




Central Inland Water Transport






Central Warehousing Corporation







Cochin Shipyards, Goa Shipyards, Hindustan Shipyard




Container Corporation






Cement Corporation








Dredging Corporation













Fertilizer Corporation, FACT, GSFC, Madras Fertilizers, National Fertilizers, Southern Pesticides






Paradeep Phosphates









Handicrafts & Handloom Exports Corporation




Hindustan Antibiotics





HAL (spinning off airframes, engine maintenance)






Hindustan Cables, Hindustan Copper, HEC, Hindustan Fertilizers, Hindustan Fluorocarbons, Hindustan Latex, Hindustan Insecticides










Hindustan Newsprint, HindustanPaper














Hindustan Zinc



Hotel Corporation











Indian Additives


















IISCO, Sponge Iron


















Kudremukh Iron Ore





Konkan Railway, IRCON, RITES






Lubrizol India






































National Seeds








Neyveli Lignite









Power Grid Corporation































Vizag Steel