A Scenario of Disinvestment of Public Sector Enterprises in India: An Initiative to Measure Performance
Abstract
This study examines the impact of divestment on the financial and operational performance of 15 selected Indian Central Public Sector Enterprises (CPSEs) that underwent disinvestment between 2010 and 2020. The primary objective is to empirically assess whether divestment has improved the financial health and operational efficiency of these enterprises. The study utilizes secondary financial data collected from the annual reports of the selected CPSEs and other official sources. Ratio analysis is employed using key financial indicators, including Return on Equity (ROE), Return on Assets (ROA), Debt–Equity Ratio (DER), and Dividend Payout Ratio (DPR), to evaluate firm performance before and after disinvestment. To determine the statistical significance of changes in these indicators, the non-parametric Wilcoxon Signed-Rank Test is applied. The empirical findings reveal a statistically significant decline in profitability, as reflected by reductions in ROE and ROA, indicating that divestment has not resulted in a significant improvement in the profitability of the selected CPSEs. However, the Dividend Payout Ratio shows a significant increase following disinvestment, suggesting an improvement in shareholder returns despite weaker profitability. The findings indicate that ownership dilution alone is insufficient to enhance the financial and operational performance of public sector enterprises unless it is accompanied by effective corporate governance reforms, managerial autonomy, operational restructuring, and improved market competitiveness. The study contributes to the existing literature by providing recent empirical evidence on the post-disinvestment performance of Indian CPSEs during the latest phase of India's disinvestment programme, offering valuable insights for policymakers, investors, and researchers regarding the effectiveness of India's disinvestment policy and its implications for future privatization strategies.
