Question

Read the extract given below and answer the questions that follow:
PTI Jun 15, 2014
New Delhi: The Finance Ministry has asked the Department of Disinvestment to complete the ground work for sale of shares in state-owned companies soon after the budget to take advantage of the bull phase in the stock market. The government is expected to retain the disinvestment target of Rs 36,925 crore proposed in the interim budget for 2014-15.
(i) What is disinvestment?
(ii) How will privatisation lead t:
(1) Control of budgetary deficits
(2) Flow of funds to Public Exchequer
(3) Greater flexibility in decision making

Answer 1

(a) (i) Disinvestment: It implies transfer of a part of Government Shareholdings in the public sector enterprises to the private sector.
(ii) Control of Budgetary Deficits: There would be no question of budgetary deficit, if the PSUs fielded a 10% return on investment. But in reality it is not so. The budgetary deficit have risen sharply from year to year. For instance, the budgetary deficit which was Rs 1417 crores in 1983-84, has increased to Rs 1,51,000 crores in 2005-06. Therefore, the government can control its staggering budgetary deficit by using the sale proceeds on the shares in PSUs.
2) Flow of funds to public exchequer: Operation of public sector enterprises has been putting a large burden on public exchequer because of huge losses incurred by a number of enterprises and growing subsidy payments. Privatisation would be helpful in reducing this financial burden upon the government.
3) Greater flexibility in making decisions: Sometimes PSUs suffer losses just due to inadequate autonomy in the 'decision making power' of the management. If the PSUs are privatised, then the production and investment decisions of the management would be free from any Government intervention, and they would be purely guided by profit motive.