MIS- ROUTING through DIS-INVESTMENT_____!!

First of all I would like to define what is Dis-Investment!

In simple words, It is negative investment, in other words, it means to sell ones investments in shares, properties, or any other tangible or intangible asset or right.

Now i come to Need for Dis-Investment!

There can be many reasons, a few major of them are:-

1. good opportunity i.e. the owner is earning a good amount of profit on these investment;

2. availability of other good investment areas;

3. as part of some settlement, like family settlement and

4. major issue which gives rise to it is:

to pay off debts.

Now linking this definition and need to Indian context we find that:

Newly formed government is about to take the route ofDIS-INVESTMENT. As already defined, govt is planning to sell its shares or bring an IPO in state owned entities, also known as PSUs(public Sector Undertakings). Now somes the issue of NEED, now we see that what is the reason behind this decision for this GOVT who runs trillion $ economy. On analysing the above mentioned reasons we ge to know that our govt is under huge debt, which is Fiscal Deficit.

This fiscal deficit (as per govt. estimates ) is approx. 6% of Indian Trillion $ (10 lakh crore Rupees) economy i.e. Rs. 3.3 Trillion or Rs. 3 lakh 30 thousand crores. This high fiscal deficit has been finalced by loan at higher rate of interest which is around 10% pa. So Interest amounting to be on this huge amount would be:

Rs.33000/- (Rs. Thirty three thousand crores) pa.

What is Fiscal Deficit?: It is the difference between the Revenue Receipts and Total Expenditure especially used in context of Govt.

Presently Fiscal deficit can be dealt with by 3 methods:

a. printing of new currency,

b. increasing Taxes, and

c. Dis-investment.

Printing of new currency: as i have written earlier that there excess currency has already been printed and is already generating problems for the Economy.

Increasing Taxes: now govt is not in a position to increase revenue by way of taxes as there is already severe recession is going on and our industries are seeking for stimulus packages and bailout.

Dis-investment: So the only way left is Dis-investment. Govt is Planning to disinvest 8-10% of its holdings in PSUs and making it sure that total of govt's share shall not fall below 51% in total in any PSU.

METHODS WHICH CAN BE USED FOR DIS-INVESTMENT:

(i) Selling its shares in open market,

(ii) Asking PSUs to crop money through IPO.

Selling its shares in open market

This is the Dis-investment in real sense. As in this method govt will directly sell its holding into the markets and shall reduce its holding in PSUs and reducing got's voting rights. Under this method govt will be getting money directly from the buyers.

Asking PSUs to crop money through IPO

In this method govt will not sell its shares directly but will ask the PSUs to issue its shares by way of IPO(Initial Public Offering). However this will also decrease govt share hoding by increasing public's share holding i.e. this will also dissolve govt's voting rights.

However in this method money will flow to PSUs and not the govt. directly. this problem can also be dealt with by the govt. by issuing bonds to these PSUs i.e. by borrowing from these PSUs. That is these companies will act as govt's agent in arranging funds and will not left with enough funds for there developments.

These PSUs will crop money in the name of using this money for there expansion and development and this purpose will be defeated by the above mentioned loan arrangement

OR

These PSUs acting as govt agents will misrepresent and will misstate the facts to investors to extract mony from them.

The biggest Telcom Giant BSNL which is also an unlisted PSU is also in a pipeline to for disinvestment. While looking at the Balance Sheet of this Giant company it can be seen that it is sitting on a large pool of unutilised cash which is nearly Rs.60,000/- CRORES.

Now you yourself see that whether this company needs any further capital for its expansion or development which the govt is planning to raise by way of IPO???

GOVT is planning to raise Rs.70,000/- Crores to Rs.85,000/- Crores in the next two financial years.

Focusing back on to the Fiscal Deficit, the method to be followed to deal with it and the amount so raised we can clearly see that govt will be able to raise approx Rs.40,000/- Crores in each financial year out of which Rs.33,000/- Crores will be utilised in paying back only the interest on the actual Fiscal Deficit leaving behing less amount for anything.

This situation can be explained in a following manner:-

Extracting total water available in a well to revive completely dried up sea.

People may talk in favour of Dis-investment by saying "Dis-investment will lead to privatistion and hence will improve the efficiency", on this matter i would like to state that by Dis-investing or diluting 8-10% of its share holding will not decrease govt's share in these PSUs below 51% and untill govt's holding dont fall below 51% it will not change the status of these PSUs from Govt undertaking to private undertaking and therefore not effecting its management and hence will not improve its efficiency.

CONCLUSION:

I would like to conclude by stating that this decision to Dis-invest will be prove to be the biggest mistake in the long run and this will not release the govt of its debt rather it'll not only increase its debts but it'll reduce its assets too.