Thursday, November 12, 2009

Fresh bout of disinvestment

Hopefully, we should soon see a fresh bout of disinvestment, with several unlisted PSUs being brought to the market. That's very good news. Not because it will help contain the fiscal deficit, as some commentators have rushed to point out. The fiscal impact of disinvestment tends to be exaggerated. Its real value lies in its potential to bring about greater commercial discipline through listing on the stock exchange.

Disinvestment helps improve performance when combined with competition and better board room governance. Liberalisation has taken care of competition. More needs to be done on board-room governance in PSUs. Unlike in the private sector, there is scope for doing a great deal more, as I argue in my ET column, Disinvest for better governance.


Paddy said...


As you have pointed out, the government will still be the 900 pound gorilla in the room. Even with much lower government shareholding, public sector banks are yet to equal pvt banks in many aspects. The proposed disinvestment will definitely make funds available for other purposes, but I doubt if it will significantly improve the functioning of the PSUs.

Anonymous said...

@Paddy - It does in the sense it becomes accountable to public investors as well as it has to abide by norms of SEBI. The earlier puts pressure on performance and the latter on Governance.

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Hemant said...

Very true,

But for the improvment in the functioning of PSU's there are stll drastically changes required the organizations as the whole which can not be achived by disinvestment.

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Unknown said...

I agree, PSU's divestment will definitely improve the performance. Divestment in PSUs is a very important step forward.

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