Disinvestment is all about increased efficiency - but don't you believe them

The Department of Investment and Public Asset Management sets out its mandate, vision and mission on its website.
   
Mandate
The Department of Disinvestment was set up as a separate Department on 10th December, 1999 and was later renamed as Ministry of Disinvestment from 6th September, 2001.

From 27th May, 2004, the Department of Disinvestment is one of the Departments under the Ministry of Finance.

The Department of Disinvestment has been renamed as Department of Investment and Public Asset Management (DIPAM) from 14th April, 2016. 

1. As per the present Allocation of Business rules, the mandate of the Department is as follows: 

a. All matters relating to management of Central Government investments in equity including disinvestment of equity in Central Public Sector Undertakings.

b. All matters relating to sale of Central Government equity through offer for sale or private placement or any other mode in the erstwhile Central Public Sector Undertakings.

Note: All other post disinvestment matters, including those relating to and arising out of the exercise of Call option by the Strategic Partner in the erstwhile Central Public Sector Undertakings, shall continue to be handled by the administrative Ministry or Department concerned, where necessary, in consultation with the Department of Investment and Public Asset Management (DIPAM).

2. Decisions on the recommendations of Administrative Ministries, NITI Aayog, etc. for disinvestment including strategic disinvestment.

3. All matters related to Independent External Monitor (s) for disinvestment and public asset management. 

4. a. Decisions in matters relating to Central Public Sector Undertakings for purposes of Government investment in equity like capital restructuring, bonus, dividends, disinvestment of government equity and other related issues. 

4. b. Advise the Government in matters of financial restructuring of the Central Public Sector Enterprises and for attracting investment in the said Enterprises through capital market.

5. The Unit Trust of India Act, 1963 (52 of 1963) along with subjects relating to Specified Undertaking of the Unit Trust of India (SUUTI).


Vision and Mission

Vision
Promote people’s ownership of Central Public Sector Enterprises to share in their prosperity through disinvestment.

Efficient management of public investment in CPSEs for accelerating economic development and augmenting Government’s resources for higher expenditure

Mission
List CPSEs on stock exchanges to promote people’s ownership through public participation and improving efficiencies of CPSEs through accountability to its shareholders.

To bring in operational efficiencies in CPSEs through strategic investment, ensuring their greater contribution to economy.
 
Adopt a professional approach for financial management of CPSEs in the national interest and investment aimed at expanding public participation in ownership of CPSEs.

This policy is based on certain assumptions about economics that are shaped by politics rather than economic practicalities and fair and desirable social outcomes.

Ha-Joon Chang in the introduction to his book 23 THINGS THEY DON'T TELL YOU ABOUT CAPITALISM writes:

We do not live in the best of all possible worlds. If different decisions had been taken, the world would have been a different place. Given this, we need to ask whether the decisions that the rich and the powerful take are based on sound reasoning and robust evidence. Only when we do that can we demand right actions from corporations, governments and international organizations. Without our active economic citizenship, we will always be the victims of people who have greater ability to make decisions, who tell us that things happen because they have to and therefore that there is nothing we can do to alter them, however unpleasant and unjust they may appear. (p. xvii)

His book questions 23 of these assumptions, "things", as he calls them, assumptions that are widely accepted and widely used, politically.

In the chapter Thing 1 - There is no such thing as a free market, he says:

The free market doesn't exist. Every market has some rules and boundaries that restrict freedom of choice. A market looks free only because we so unconditionally accept its underlying restrictions that we fail to see them. How 'free' a market is cannot be objectively defined. It is a political definition. The usual claim by free market economists  that they are trying to defend the market from politically motivated interference by the government is false. Government is always involved and those free-marketeers are as politically motivated as anyone.

In the chapter Thing 2 - Companies should not be run in the interests of their owners, he begins by explaining that whilst we are told that:

Shareholder's incomes vary according to the company's performance, giving them the greatest incentive to ensure the company performs well.

And . . .

When you run a company for the shareholders, its profit is maximized, which also maximizes its social contribution.

. . . the opposite is true . . .

Shareholders may be the owners of corporations but, as the most mobile of the 'stakeholders', thet often care the least about the long-term future of the company. Consequently, shareholders, especially but not exclusively the smaller ones, prefer corporate strategies that maximize short-term profits, usually at the cost of long-term investments, and maximize the dividends of those profits, which even further weakens the long-term prospects of the company by reducing the amount of retained profit that can be used for re-investment.

When it comes to the interests of all Indian citizens, and employees of state owned businesses, the long-term 'stakeholders' in all these state owned assets, it appears that politicians and bureaucrats are farming these assets out to shareholders, and using the "profits" being generated by this policy to meet short-term political promises, while disregarding the long-term benefits of increased investment for the future.

The majority of Ha-joon Chang's other Things also apply to the political mindset that has been shaped by the neoliberal political agenda in India. This includes:

Thing 7 - Free-market policies rarely make poor countries rich

Thing 12 - Governments can pick winners

Thing 13 - Making rich people richer doesn't make the rest of us richer

Thing 15 - People in poor countries are more entrepreneurial than people in rich countries

Thing 16 - We are not smart enough to leave things to the market

Thing 17 - More education in itself is not going to make a country richer

Thing 19 - Despite the fall of communism, we are still living in planned economies 

Thing 21 - Big government makes people more open to change
 
Thing 22 - Financial markets need to become less, not more, efficient

In the chapter on Thing 23 - Good economic policy does not require good economists, he ends by saying:

In other words, economics has been worse than irrelevant. Economics, as it has been practised in the last three decades, has been positively harmful for most people.

He continues . . .

I stick to economics because I believe that it does not have to be useless or harmful. After all, throughout this book I have myself used economics in trying to explain how capitalism really works. It is a particular type of economics - that is free-market economics as it has been practised in the last few decades - that is dangerous. Throughout history, there have been many schools of economic thinking that have helped us better manage and develop our economies.

To start from where we are today, what has saved the world economy from a total meltdown in the autumn of 2008 is the economics of John Maynard Keynes, Charles Kindleberger (the autor of the classic book on financial crises Manias, Panics and Crashes) and Hyman Minsky (the greatly undervalued American scholar of financial crises). The world economy has not descended into a rerun of the 1929 Great Depression because we absorbed their insights and bailed out key financial institutions (although we have not properly punished the bankers responsible for the mess or reformed the industry yet), increased government spending, provided stronger deposit insurance, maintained the welfare state (that props up the income of those who are unemployed) and flushed the financial markets with liquidity on an unprecedented scale. As explained in earlier Things, many of these actions that have saved the world are ones opposed by free-market economists of earlier generations and of today.

Even though they were not trained as economists, the economic officials of East Asia knew some economics. However, especially until the 1970's, the economics they knew was mostly not of the free-market variety. The economics they happened to know was the economics of Karl Marx, Friedrich List, Joseph Schumperer, Nicholas Kaldor and Albert Hirschman. Of course, these economists lived in different times, contended with different problems and had radically differing political views (ranging from the very right-wing List to the very left-wing Marx). However, there was a commonality between their economics. It was the recognition that capitalism develops through long-term investments and technological innovations that transform the productive structure, and not merely an expansion of existing structures, like inflating a balloon. Many of the things that the East Asian government officials did in the miracle years - protecting infant industries, forcefully mobilizing resources away from technologically stagnant agriculture into the dynamic industrial sector and exploiting what Hirschman called the 'linkages' across different sectors - derive from such economic views (see Thing 7). Had the East Asian countries, and indeed most of the rich countries in Europe and North America before them, run their economies according to the principles of free-market economics, they would not have developed their economies in the way they have.

The economics of Herbert Simon and his followers has really changed the way we understand modern firms and, more broadly, the modern economy. It helps us break away from the myth that our economy is exclusively populated by rational self-seekers interacting through the market mechanism. When we understand that the modern economy is populated by people with limited rationality and complex motives, who are organised in a complex way, combining markets, (public and private) bureaucracies and networks, we begin to understand that our economy cannot be run according to free-market economics. When we more closely observe the more successful firms, governments and countries, we seethey are the ones that have this kind of nuanced view of capitalism, not the simplistic free-market view.

Even within the dominant school of economics, that is the neo-classical school, which provides much of the foundation for free-market economics, there are theories that explain why free markets are likely to produce sub-optimal results. these are theories of 'market failure' or 'welfare economics', first proposed by the early twentieth-century Cambridge professor Arthur Pigou, and later devloped by moder-day economists such as Amartya Sen, William Baumol and Joseph Stieglitz, to name just a few of the most important ones.

Free-market economists, of course, have either ignored these other economists or, worse, dismissed them as false prophets. These days, few of the above mentioned economists, except those belonging to the market-failure school, are even mentioned in the leading economic textbooks, let alone properly taught. But the events that have been unfolding for the last three decades have shown that we actually have a lot more positive things to learn from these other economists than from free-market economists. The relative successes and failures of different firms, economies and policies during this period suggest that the views of these economists who are now ignored, or even forgotten, have important lessons to teach us. Economics does not have to be useless or harmful. We just have to learn the right kinds of economics.   

 (pages 248 - 251)