Impact of Disinvestment in relation to the Capital Markets
Why the need for Divestment ?
Industries and companies owned by private enterprise were nationalised or taken over by the central government
This effectively meant that the state now owned the enterprise
Sectors included banks, oil refineries, sugar mills, textile mills and so on
The need of the day when India was closely aligned to Russia, a communist state was to have socialistic ideology.
As we moved forward, the ideology changed from a leftist stance to a middle path or centrist, and is now moving towards the rightist or capitalist
Concept of State Owned Enterprise
Large Scale Investment in Core Sector as Government of day felt private enterprise was incapable of such investment
Strategic investment in areas like defence and oil exploration.
Margaret Thatcher- The Iron Lady of UK. Under her government she divested British Airways and many other enterprises and introduced the concept of “Golden Share”
Union Leaders, Politicians and Statesmen took both sides during this process. However, results are there for all to see.
Divestment or Dis-investment.
The need of the hour now is that governments should do the job of running the state and not the business of running an enterprise.
It is this awakening that led to privatisation in the UK followed by India and now even in Russia.
In India, privatisation and reforms began for the first time under Manmohan Singh as the Finance Minister.
After 1992, there have been instances where reforms and divestment have happened with politicians blowing hot and cold.
Benefits of Divestment
Efficiency
Competition
Consumer is King
Quality and service
Improves standard of living
Why the Opposition to Divestment ?
Politicians lose control
Union Leaders lose their following
Job continuity without efficiency or performance becomes a thing of the past
Salary is only paid if you work
Government employment is no longer a guarantee for living a cushy life
Do we have alternatives to Divestment ?
Think of MARUTI
Now think of VSNL
Think of INDIAN AIRLINES
And Finally think about LIC
MARUTI
MARUTI came when we were used to FIAT and Ambassador
In no time it became the largest selling vehicle. In about 5 years it started selling more cars every year than what Fiat and Ambassador did in a decade.
Till 3 years ago it had more than 80 % market share.
This year the market share is around 40 % and is likely to continue dipping even though the overall market has grown.
VSNL
VSNL- A complete monopoly.
All telecom traffic routed through VSNL.
Now- fighting for survival
Competitors include state run BSNL and private players like Bharti Telecom
Indian Airlines
Indian Airlines.
Remember the flights being cancelled, delayed, horrible in flight service, frequent fare hikes ?
Now competition has brought more flights, choice of airlines, almost zero delay, choice of menu and almost 50 % discount on APEX fares
Life Insurance Corporation
Life Insurance Corporation
It’s a fact of life that the person whose life is insured normally does not go to collect the sum assured…his family when tries to collect the money is harassed to no end
Competition has ensured such problems do not occur anymore .
In less than 2 years you have more than a dozen insurance companies with better service and premiums also reducing