Both disinvestment as well as privatization is the reverse of investment. For setting up public sector, the government had to invest by subscribing in shares of the new public sector from budgetary resources. Thus, disinvestment and privatization both imply ‘selling of shares of public sector by the government’. We all know that shares are traded at the stock market and the traded value of each share is decided by the buyers and the sellers in the market.
If buyers of shares of a particular company are more than the sellers of the same, the traded value of the shares would be at a premium’ or otherwise it would be at a ‘discount’. Thus, in both the cases of disinvestment as well as privatization, selling of shares of public sector would be at a premium.
The policy took a mature decision in seeking privatization of the public sector for the following reasons:
- The public sector as mentioned earlier had broadly delivered in terms of creating significant capacities in key areas such as self-reliance, substituting for import of industrial goods, created the platform for further industrialization and industrial There is a requirement now to moving into higher gears and look at issues such as developing greater capabilities, improving productivity and efficiency, sharp focus on profitability.
- The policy of liberalization has opened the gates for liberal private sector investment in key areas and competition would only intensify. This requires the public sector to now run as pure businesses, as a commercial venture which is possible solely in private sector. As a public sector, there will always be a limitation of not being to operate as a pure business in the same way as their counter pans in the private sector.
- The role of the government as a producer of industrial goods is always interim, short-term and never permanent. It can be permanent producer only of those where direct welfare of people is affected like railways or in the national interest like atomic