■ Indian Journal of Commerce & Management Studies ■ ISSN – 2229-5674

DISINVESTMENT AND TELECOM SECTOR OF INDIA

Dr. Gagan Singh

Uttarakhand Open University
Haldwani-Nainital
Uttarakahnd-263139, India

ABSTRACT
Public sector undertakings in India were viewed as a mechanism for structural transformation of
the economy and for growth with equity and social justice. Disinvestment has supposed to be the
tool in the hands of Government to improve the functioning and profitability of public sector
enterprises and also raise funds to mitigate its fiscal deficits. India has opened its telecom sector to
foreign investors up to 100 percent holding in manufacturing of telecom equipment, internet
services, and infrastructure providers 74 percent in radio-paging services, internet and 49 percent
in national long distance, basic telephone, cellular mobile, and other value added services. In the
present study an attempt has been made to examine the impact of disinvestment on the financial and
operating performance of selected units of telecom sector. The management of the telecom sector
failed in controlling its various expenditures during the post-disinvestment period and its liquidity
position has not been found satisfactory.

Keywords : Corporate Liquidity, Disinvestment, Liberalization, Strategic Sale

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■ Indian Journal of Commerce & Management Studies ■ ISSN – 2229-5674

INTRODUCTION:
Telecommunications is one of the fastest-growing areas of technology in the world. Because of its
rapid growth, businesses and individuals can access information at electronic speed from almost anywhere
in the world. The telegraph act of 1885 governed the telecommunications sector. Under this act, the
government was in-charge of policymaking and provision of services. Major changes in
telecommunications in India began in the 1980s. Soon after, the Mahanagar Telephone Nigam Limited
(MTNL) and Videsh Sanchar Nigam Limited (VSNL) were set up in 1986. The Telecom Commission was
established in 1989. Disinvestment of PSU's in the telecom sector was also undertaken during the year
2001-02. In February 2002, the disinvestment of VSNL was completed by bringing down the government
equity to 26 per cent and the management of the company was transferred to Tata Group, a strategic
partner. During the year, HTL was also disinvested. In India, as in many developing countries, low
teledensity resulted in great emphasis being laid on rapid expansion often at the cost of quality of service.
One of the benefits expected from the private sector's entry into telecom is an improvement in the quality
of service to international standards. Armed with financial and technical resources, and greater incentive
to make profits, private operators are expected to provide consumers value for their money.
Disinvestment is a process whereby the Government withdraws a portion or the total of its equity
in Public Sector Enterprises (PSEs). Disenchantment with public sector started in 1970's. It was observed
in many countries that the performance of Public Sector Enterprises (PSEs) was far below the
expectations. By mid-eighties their short comings and weaknesses started manifesting the form of low
capacity utilization, low efficiency, lack of motivation, over-mining, huge time and cost overrun, inability
to innovate and take quick decision, large scale political and bureaucratic interference in decision making
etc. The aim of economic liberalization was to enlarge competition and allowing new firms to enter the
market. Thus, the emphasis shifted from PSEs to liberalization of economy and gradual disinvestment of
PSEs. Huge amount of public resources are blocked in several non-strategic PSEs giving meager return.
Government is forced to commit further resources for sustenance of many non viable PSEs in absence of
exit route. All these Government economic woes led to an obviously straight forward action of
disinvestment of Government stake in PSEs. (Nanjundappa, D.M., 1998)
The main features of Government's present policy towards public sector are restructure and revive
potential viable PSEs, close down PSEs which cannot be revived, bring down Government equity in all
non-strategic PSEs to 26% or lower, if necessary, fully protect the interests of workers. In order to
expedite the process of disinvestment, the Government established a new full-fledged Ministry of
Disinvestment. Disinvestment era, at the peak during NDA Government came to halt with the installation
of UPA Government at the centre. Under the pressure of the left parties, the new Government closed
Ministry of Disinvestment and converted it into a Department under Ministry of Finance. Common
minimum programme of UPA Government has made it clear that no profit making PSU's will be
privatized, navaratana PSU's will be kept in public sector, proposal of privatization of loss making PSUs
will be go through consultation with the workers, no privatization if it creates monopoly or restrictive
competition.
The Disinvestment Commission was set up by the Government of India in August, 1996 to advise
on the strategy, extent, methodology, timing and pricing of disinvestment of each and every Public Sector
Enterprises (PSEs). The Disinvestment Commission submitted report to the Government. The Department
of Disinvestment was set up vide notification No. CD/551/99 dated 10-12-1999 as a nodal department to
streamline and speed up progress of disinvestment. The DOD has been made responsible for matters
relating to disinvestment of central Government equity from PSU's and it is also responsible for decisions
on the modalities of disinvestment including restructuring. Vide notification no. CD-442/2001 dated 6th
September 2001, the Department of Disinvestment was renamed as Ministry of Disinvestment.
(Gangadhar, V. and Yadagiri, M., 2003)

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■ Indian Journal of Commerce & Management Studies ■ ISSN – 2229-5674

PROCEDURE FOR DISINVESTMENT

Disinvestment in India began in 1991-92 and the first Disinvestment Commission functioned from
August 1996 to November 1999. However, till 1999 the Government established the Department of
Disinvestment. With the constitution of the department the veil over the disinvestment process started
lifting. The apex decision-making body on disinvestment is the Cabinet Committee on Disinvestment
headed by the Prime Minister. A core group of secretaries on disinvestment headed by the Cabinet
Secretary deliberates on various aspects of the disinvestment program in the following manner. On the
recommendations of the Disinvestment Commission or of the other expert bodies, or on the basis of
decisions taken in consultation with the Administrative Ministry, the Ministry of Disinvestment initiates
proposals and places them for the consideration of the core group of secretaries on disinvestment. The
decisions taken by the core group, in the form of recommendations, are then submitted to the
consideration of the Cabinet Committee on Disinvestment and a final decision is obtained procedure for
disinvestment. Naib, Sudhir (2004)
The present research is divided into four sections. The present section deals with introduction and
following section describes the research methodology of the study. The third section makes the analysis of
the data and interpretation thereof and the last section gives the concluding remarks.

Table-1
Disinvestment Modalities Recommended by the Disinvestment Commission
S. N. Modalities of Disinvestment No. of Name of PSE's
PSE's
1. Involving Change in Ownership/
Management
a) Strategic Sale 31 HIL, ITI, BALCO, BORL,
KIOCL, MFL, EIL, HPL, IBP,
NEPA, HZL, PPCL, NFL,
FACT, IPCL, HCL, SCI,
MMTC, PPL, MECON, BHEL,
Hindustan Insecticides, HOCL,
RCFL, RINL, NLL, MOIL
b) Trade Sale 8 ITDC, MFIL, HCIL, R-Ashok,
U-Ashok, PHL, SIIL, MSTC
2. Involving no Change in Ownership/
Management
Offer of Shares 6 GAIL, CONCOR, MTNL,
NALCO, NMDC, RITES
3. No Change Disinvestment Differed 8 OIL, ONGC, NTPC, NHPC,
SAIL POWER GRID, CEL,
MECL
4. Closure/Sale of Assets 4 EPIL, ET&T, HVOL, RICL
5. Management Employee Buyout/ 1 PEC
Strategic Sale/Closure
Total 58
Source: Disinvestment Commission Reports (I to XIII)

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■ Indian Journal of Commerce & Management Studies ■ ISSN – 2229-5674

REVIEW OF LITERATURE
Rao, Prakasha and Ramana (2001) concluded in his study “Disinvestment: An Indian Perspective”
that public sector was thought of as engine for self reliant economic growth and development.
Government chooses public enterprise as a tool to perform their roles as regulatory, promotional or
participative. It is in this context that the present paper highlights the need for privatization, disinvestment,
methods of disinvestment, present scenario and critical evaluation of disinvestment in Indian context.
Tiwari and Prabhakar (2001) conducted a study on “Disinvestment in Public Sector Enterprises
(PSE’s) in India”. This paper aims at questioning the very purpose, procedure and timing of disinvestment
in PSE’s in India. Disinvestment was proposed to increase the private participation in these enterprises to
improve their efficiency, but there is no such correlation between participation and efficiency as proved by
the experiences of third world countries like China, South Korea and Argentina.
Chundawat, Bhanawat and Mehta (2005) conducted a study on "Disinvestment and Corporate
Performance." The main objective of this paper is to study the impact of the disinvestment on the
corporate performance of the public sector undertakings (PSU’s). Corporate performance, for the purpose
of present study has been taken to be the financial performance of the undertakings in which the
Government has undertaken disinvestment.
Need and Scope of the Study
Public sector undertakings in India were viewed as a mechanism for structural transformation of
the economy and for growth with equity and social justice. The public sector thus lost its original role and
strategic focus, which shifted to supply of goods and services on subsidized rates and creation of
employment. This led to inefficiencies, neglect of resource mobilization for modernization, increased
dependence on unproductive borrowings, lack of motivation to improve efficiency and increase in fiscal
deficit of the Government. The issue of public sector versus private sector assumed greater significance
immediately after the attainment of independence when the country was faced with the gigantic problem
of accelerating the pace of economic development and selecting a political and economic philosophy
suited to the needs and aspirations. Disinvestment has supposed to be the tool in the hands of Government
to improve the functioning and profitability of public sector enterprises and also raise funds to mitigate its
fiscal deficits.
In the present study an attempt has been made to examine the impact of disinvestment on the
performance of selected units of telecom sector. This will throw light on whether the envisaged goal of
improvement in performance was in fact achieved. In telecom sector two public sector enterprises namely:
Videsh Sanchar Nigam Limited and Mahanagar Telephone Nigam Limited have been selected for the
present study.

OBJECTIVES OF THE STUDY

The following objectives have been visualized for the present study:
• to study the impact of disinvestment on the financial performance in terms of financial strength
and corporate liquidity.
• to study the impact of disinvestment on the operating performance based on sales, investment,
employment and asset usage.

HYPOTHESIS
To achieve these objectives the following hypothesis has been tested:
• there is no significant impact of disinvestment on the financial and operating performance of the
units.

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■ Indian Journal of Commerce & Management Studies ■ ISSN – 2229-5674

RESEARCH METHODOLOGY
The above objectives have been studied through the use of secondary data. The secondary data has
been collected from published reports of selected Indian public sector enterprises and records of
Government of India. The data drawn from various sources has been analyzed with the help of various
statistical test, accounting tools and techniques. Ratio analysis, mean, standard deviation, co-efficient of
variation and student ‘t’ test are used to analyze the sample data. Impact of disinvestment on the financial
and operating performance of the telecommunication sector has been examined with the help of various
ratios based on sales, investment, employment, financial strength corporate liquidity and asset usage.

Table- 2
Financial and Operating Performance of Videsh Sanchar Nigam Limited
Pre-disinvestment Post-disinvestment
Era Era t-val
Ratio P
Mea Mea ue
S.D. C.V. S.D. C.V.
n n
OPERATING PERFORMANCE BASED ON SALES
Gross Profit 13.9 -2.5 0.02
52.46 18.18 34.65 33.41 41.78
Ratio 6 1 2**
-1.4 0.16
Net Profit Ratio 25.74 7.09 27.54 20.69 6.96 33.64
6 2
Operating Profit 13.2 -2.4 0.02
52.64 18.58 35.30 34.32 38.61
Ratio 5 7 4**
Material 37.0 137.8 0.10
0.26 0.23 88.46 26.9 1.74
Cost/Net Sales 7 1 7
Manpower -2.4 0.02
3.83 0.64 16.71 2.69 1.03 38.29
Cost/Net Sales 6 5**
R&D
0.14
Expenditure/Net 0.23 0.16 69.57 0.47 0.26 55.32 1.6
8
Sales
Excise Duty/Net
0 0 0 0 0 0
Sales
OPERATING PERFORMANCE BASED ON INVESTMENT
Return on Total 0.01
27.09 7.24 26.73 18.75 6.14 32.75 -2.6
Assets 9**
Return on Net
15.3 -2.5 0.02
Capital 57.04 11.17 19.58 39.04 39.27
3 6 **
Employed
OPERATING PERFORMANCE BASED ON EMPLOYMENT
Net Profit Per 267.8 2430. 1867. 0.01
64.16 23.96 76.85 2.79
Employee 2 08 57 5**
Gross Profit Per 545.7 170.6 3815. 2576. 0.00
31.28 67.53 3.06
Employee 3 9 44 44 9*
Net Sales Per 1138. 536.7 12804 10775 0.02
47.15 84.15 2.61
Employee 39 2 .29 .08 1**
FINANCIAL STRENGTH
Debt Equity 1.48 0.61 41.22 0.83 0.59 71.08 -2.2 0.04

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■ Indian Journal of Commerce & Management Studies ■ ISSN – 2229-5674

Ratio 1**
Proprietary 14.9 0.04
43.54 9.67 22.21 58.44 25.56 2.21
Ratio 4 **
15.6 -2.6 0.01
Solvency Ratio 56.46 12.51 22.15 41.56 37.72
8 4 7**
Fixed Assets to 20.4 -0.1 0.91
51.15 8.84 17.28 50.18 40.75
Net Worth 5 1 4
Interest 628.3 957.7 152.4 12434. 30328 243.9 0.36
0.94
Coverage Ratio 5 6 2 34 .39 1 3
CORPORATE LIQUIDITY
0.60
Current Ratio 1.82 0.49 26.92 1.98 0.62 31.31 0.52
3
0.58
Liquid Ratio 1.82 0.49 26.92 1.98 0.62 31.31 0.55
8
ASSET USAGE
Inventory 409.6 324.8 3483. 3771. 108.2 0.06
79.30 1.96
Turnover Ratio 5 6 24 58 8 6
Inventory
1.35 0.96 71.11 0.18 0.12 66.67 -4.6 0*
Conversion Ratio
Debtors 0.05
1.5 0.47 31.33 3.43 2.19 63.85 2.1
Turnover Ratio 1**
Average 261.9 171.7 125. -1.6 0.12
76.81 29.32 73.11
Collection Period 5 9 59 1 6
Fixed Assets
2.43 0.21 8.64 2.43 1.27 52.26 0.01 0.99
Turnover Ratio
Working Capital 0.57
1.95 0.98 50.26 2.17 0.67 30.88 0.57
Turnover Ratio 4
Capital Turnover 177.3 113.2 36.8 -0.2 0.82
40.85 23.03 32.59
Ratio 9 1 9 2 7
* Significant at 0.01 level
** Significant at 0.05 level
Source: Public Sector Enterprises (PSEs) Survey, Various Issues

Table- 3
Financial and Operating Performance of Mahanagar Telephone Nigam Limited
Pre-disinvestment Post-disinvestment
Era Era t-val
Ratio P
Mea Mea ue
S.D. C.V. S.D. C.V.
n n
OPERATING PERFORMANCE BASED ON SALES
Gross Profit -0.7 0.44
35.57 7.37 20.72 32.75 7.26 22.17
Ratio 8 4
0.43
Net Profit Ratio 17.73 6.45 36.38 19.81 4.66 23.52 0.8
4
Operating Profit -0.7 0.44
32.57 7.36 22.60 32.75 7.26 22.17
Ratio 8 4
Material 0 0 0 0 0 0

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■ Indian Journal of Commerce & Management Studies ■ ISSN – 2229-5674

Cost/Net Sales
Manpower -1.1
12.45 2.85 22.89 16.64 8.28 49.76 0.25
Cost/Net Sales 9
R&D
Expenditure/Net 0 0 0 0 0 0
Sales
Excise Duty/Net
0 0 0 0 0 0
Sales
OPERATING PERFORMANCE BASED ON INVESTMENT
Return on Total -0.8 0.42
10.51 2.7 25.69 9.52 2.35 24.68
Assets 1 7
Return on Net
0.90
Capital 15.13 4.22 27.89 15.32 2.43 15.86 0.12
1
Employed
OPERATING PERFORMANCE BASED ON EMPLOYMENT
Net Profit Per 155.5 63.1
34.41 9.74 28.31 40.57 4.61 0*
Employee 8 2
Gross Profit Per 238.6 59.2
74.07 27.45 37.06 24.82 6.41 0*
Employee 4 4
Net Sales Per 210.8 767.9 257.
70.67 33.52 33.59 5.12 0*
Employee 3 7 98
FINANCIAL STRENGTH
Debt Equity -0.4 0.66
2.79 0.83 29.75 2.47 1.7 68.83
Ratio 4 3
Proprietary 14.4 0.18
26.92 6.13 22.77 35.51 40.81 1.37
Ratio 9 6
15.1 -1.1 0.24
Solvency Ratio 73.08 4.93 6.74 64.49 23.53
8 9 8
Fixed Assets to 169.1 104.7 51.2 -2.9 0.00
13.36 7.90 48.90
Net Worth 9 4 2 9 8*
Interest 96.7 143.0 0.13
5.11 1.93 37.77 67.67 1.55
Coverage Ratio 8 2 7
CORPORATE LIQUIDITY
-1.1 0.26
Current Ratio 2.62 0.67 25.57 2.24 0.67 29.91
4 7
-0.8 0.41
Liquid Ratio 2.45 0.67 27.35 2.18 0.64 29.36
3 6
ASSET USAGE
Inventory 16.8 0.05
8.52 1.76 20.66 23.01 73.10 2.07
Turnover Ratio 2 4
Inventory 10.1 -4.8
44.27 8.01 18.09 21.45 47.41 0*
Conversion Ratio 7 2
Debtors -2.7
9.76 3.03 31.05 6.69 1.8 26.91 0.13
Turnover Ratio 8
Average 21.8 0.07
40.83 13.53 33.14 59.69 36.67 1.93
Collection Period 9 **
Fixed Assets 0.64 0.09 14.06 0.96 0.13 13.54 5.26 0*

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■ Indian Journal of Commerce & Management Studies ■ ISSN – 2229-5674

Turnover Ratio
Working Capital 0.96
0.97 0.37 38.14 0.98 0.44 44.90 0.41
Turnover Ratio 8
Capital Turnover 11.1 0.20
42.19 5.6 13.27 48.59 22.99 1.31
Ratio 7 6
* Significant at 0.01 level
** Significant at 0.05 level
Source: Public Sector Enterprises (PSEs) Survey, Various Issues

Table 4
Financial and Operating Performance of Telecommunication Sector
Pre-disinvestment Post-disinvestment
Era Era t-val
Ratio P
Mea Mea ue
S.D. C.V. S.D. C.V.
n n
OPERATING PERFORMANCE BASED ON SALES
Gross Profit 10.9 -2.4 0.01
44.02 15.9 36.12 33.08 32.98
Ratio 1 8 8**
-0.6 0.51
Net Profit Ratio 21.74 7.7 35.42 20.25 5.83 28.79
6 3
Operating Profit 10.5 -2.4 0.02
44.11 16.15 36.61 33.54 31.34
Ratio 1 2 1**
Material 37.0 137.7 0.10
0.27 0.24 88.89 26.91 1.74
Cost/Net Sales 7 6 7
Manpower 0.59
8.14 4.91 60.32 9.67 9.17 94.83 0.53
Cost/Net Sales 3
R&D
0.14
Expenditure/Net 0.24 0.16 66.67 0.47 0.26 55.32 1.6
8
Sales
Excise Duty/Net
0 0 0 0 0 0
Sales
OPERATING PERFORMANCE BASED ON INVESTMENT
Return on Total -1.7 0.09
18.81 10.11 53.75 14.14 6.55 46.32
Assets 1 6
Return on Net
16.1 -1.3
Capital 36.08 23.32 64.63 27.18 59.53 0.18
8 6
Employed
OPERATING PERFORMANCE BASED ON EMPLOYMENT
Net Profit Per 151.1 129.5 1086. 1625 149.6 0.05
85.67 1.97
Employee 8 1 06 .15 4 7
Gross Profit Per 1701. 2402 141.1 0.05
309.9 272.5 87.93 1.98
Employee 88 .23 5 6**
Net Sales Per 674.6 606.5 5691. 8997 158.0 0.06
89.91 1.91
Employee 1 1 92 .56 8 4
FINANCIAL STRENGTH
Debt Equity -1.0 0.36
2.14 0.98 45.79 1.65 1.5 90.91
Ratio 3 8

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■ Indian Journal of Commerce & Management Studies ■ ISSN – 2229-5674

Proprietary 18.5 0.05

35.24 11.62 32.97 46.97 39.51 2.01
Ratio 6 2**
19.0 -2.2 0.02
Solvency Ratio 64.76 10.74 16.58 53.03 35.86
2 8 8**
Fixed Assets to 110.1 47.2 -1.7 0.08
62.58 56.80 77.46 61.03
Net Worth 7 7 9 2
Interest 316.7 723.1 228.3 5444. 2038 374.4 0.39
0.86
Coverage Ratio 3 2 1 49 5.85 3 3
CORPORATE LIQUIDITY
-0.4 0.62
Current Ratio 2.23 0.7 31.39 2.11 0.65 30.81
9 6
-0.2 0.80
Liquid Ratio 2.13 0.66 30.99 2.08 0.63 30.29
5 7
ASSET USAGE
Inventory 209.0 303.0 144.9 1753. 3152 179.8 0.10
1.68
Turnover Ratio 8 7 5 12 .95 5 2
Inventory 100.9 12.9 119.7 -2.0 0.04
22.83 23.04 10.81
Conversion Ratio 2 4 0 6 6**
Debtors -0.4 0.63
5.63 4.78 84.90 5.06 2.57 50.79
Turnover Ratio 8 3
Average 151.3 126.8 115.7 105. -0.9 0.36
83.81 90.90
Collection Period 9 8 4 21 1 9
Fixed Assets 0.67
1.54 0.94 61.04 1.7 1.16 68.24 0.43
Turnover Ratio 3
Working Capital 0.69
1.47 0.87 59.18 1.58 0.82 51.90 0.39
Turnover Ratio 9
Capital Turnover 42.4 0.94
79.79 48.12 60.31 80.91 52.43 0.07
Ratio 2 3
* Significant at 0.01 level
** Significant at 0.05 level
Source: Public Sector Enterprises (PSEs) Survey, Various Issues

RESULTS AND DISCUSSION

It is noticed from the Table 2 that the mean scores of gross profit, net profit and operating profit
ratios have been declined after disinvestment in VSNL due to its various uncontrollable expenditures in
the post-disinvestment period as compared to the pre-disinvestment period. It may be possible due to the
use old methods and techniques of controlling costs and marketing of its products. Study of the operating
performance based on investment reveals that there is a significant decline in the mean scores of return on
total assets and return on net capital employed ratios during the post-disinvestment period. It indicates its
inefficiency in the effective management of its assets and resources. As far as its financial strength is
concerned, there is significant decline in the mean scores of debt equity and solvency ratios during the
post-disinvestment period. It shows its lesser dependence on the outsiders’ funds as compared to the
shareholders’ funds. It can be beneficial for its long-term solvency position. It is also supported by the
significant upward movement in the mean score of proprietary ratio.
Studying the corporate liquidity of the VSNL reveals that there is insignificant increase in the
mean scores of current and liquid ratios. The upward movement in these ratios indicates that the firm has
been able in meet out its current obligations in time. The examination of the asset usage reveals that the

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■ Indian Journal of Commerce & Management Studies ■ ISSN – 2229-5674

firm is efficient in managing its inventory, fixed assets and working capital after disinvestment in the
VSNL. But the management of the firm is failed in managing its debtors efficiently during the post
disinvestment period. The change is significant at 5 percent level of significance in the cases of gross
profit ratio, operating profit ratio and return on capital employed. Thus, disinvestment has impact on the
financial strength and operating performance of the unit based on sales and based on employment.
From the Table 3 it is revealed that the mean score of gross profit ratio of MTNL has declined in
the post disinvestment period. But, as far as its net profit and operating profit ratios are concerned, there is
an upward movement in the mean scores of these ratios. They are spending more on the development of its
manpower in the post-disinvestment period as compared to pre-disinvestment period. Study of the
operating performance of MTNL, based on investment reveals that the management of the firm failed in
the efficiently management of its assets and resources entrusted to the business after disinvestment in this
unit. It will adversely affect the goodwill of this firm in the global market. The examination of the
financial strength of the MTNL reveals that there is insignificant decline in the mean scores of debt equity
ratio and solvency ratio. It indicates that its dependence on the external funds has declined. It is also
supported by the improvement in the mean score of proprietary ratio during the post-disinvestment period
as compared to the pre-disinvestment period.
Studying the corporate liquidity of the firm in the form of current and liquid ratios reveals that
there is a decline in the mean scores of current and liquid ratios during the post-disinvestment period. It
can adversely affect its liquidity position. As far as its assets usage is concerned, it is found that there is
significant decline in the mean score of debtors turnover ratio. It shows the inefficiency of the
management of this firm in the efficient management of its debtors. In other words, it can be said that they
are unable in the timely collection of its debts. While studying the inventory turnover, fixed assets
turnover and working capital turnover, fixed assets turnover and working capital turnover ratios, it is
found that after disinvestment of MTNL the management of the firm efficiently managed its assets. On the
application of t-test, it has been found that the change is significant at 1 percent and 5 percent level of
significance in the cases of operating performance based on employment and asset usage of the
enterprises. In other words, it can say that disinvestment has impact on the operating performance of
MTNL based on employment and also on their asset usage.
Table 4 reveals that the operating performance of telecom sector based on sales has shown a
decline in the mean scores of gross profit, net profit and operating profit ratios in the post-disinvestment
period as compared to the pre-disinvestment period. It shows that the profitability of the telecom sector
has been deteriorating due to their uncontrollable expenditures in the post-disinvestment. The
improvement in the mean score of R & D expenditure to net sales will help this sector in controlling costs
and developing new methods and techniques to train their employees. But in the case of MTNL, there is no
provision for its research and development programmes. Studying the operating performance based on
investment reveals that the management of the selected units of telecom sector failed in the utilization of
the resources. It has been recorded in the VSNL unit of telecom sector. So, in order to compete in this era
of competition the management of this sector has to improve their efficiency in the utilization of their
resources.
Studying the financial strength of telecomm sector reveals that there is a decline in the mean scores
of debt equity and solvency ratios during the post-disinvestment period. It shows that the management of
telecom sector has been using less outsiders’ funds in the post-disinvestment period as compared to the
pre-disinvestment period. For the sound long-term solvency of the telecom sector, the use of debt should
be limited. As far as the corporate liquidity of telecommunication is concerned, it has been found that the
management of this sector has been failed in the efficient utilization of their working capital during the
post-disinvestment period. In other words, they are unable in meeting their current obligations in time. It
has recorded in MTNL. As regards the asset usage of telecom sector, it has been found that there is an
improvement in the mean score of inventory turnover and significant decline in the mean score of

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inventory conversion period ratio. It shows its improved efficiency in the effective management of their
inventory and also in the conversion of stock in to sales. But the management of this sector failed in the
case of their debtors’ utilization during the post-disinvestment period. The change is significant at 5
percent only in the cases of gross profit and operating profit ratio and proprietary ratio and solvency ratio.
Thus, disinvestment has no impact on the operating performance based on investment, employment,
corporate liquidity and asset usage of telecom sector.

CONCLUSION

Public Sector Enterprises (PSEs) occupy an important place in the national economies of most
countries of the world irrespective of their political orientation. A notable revolution has occurred in the
telecom sector. In the pre reforms era, this was entirely in the hands of the central government and due to
lack of competition, the call charges were quite high. The service rendered by the government monopoly
was also very poor. Today, there are many players in the telecom sector. The ultimate beneficiary has been
the consumer. Prices of services in this sector have fallen drastically. Due to an increase in various
expenditures of VSNL during the post-disinvestment period, its profitability has declined. The efficiency
of the utilization of the resources entrusted to the business has also declined. As regards the financial
strength and corporate liquidity of this unit, it has been found that its dependence on the outsiders’ funds
has declined and the firm is able in meeting its current obligations in time. But the management of the
VSNL failed in the timely collection of its debts. The management of the MTNL failed in controlling its
various expenditures in relation to sales. They also failed to utilize efficiently of its assets and resources
entrusted to the business. The study of the financial strength and corporate liquidity reveals that firm is
utilizing more shareholders’ funds in financing its fixed assets and the management of the firm is able to
meet out its current obligations in time. The management of the telecom sector failed in controlling its
various expenditures during the post-disinvestment period. The decline in the return on total assets and
return on net capital employed again indicates their inefficiency in the efficient utilization of its resources.
During the post-disinvestment the use of shareholders’ funds has increased as compared to debt. On the
other hand, liquidity position of these units has not been found satisfactory. However, the improvement in
the utilization of its inventory, working capital and fixed assets is good for its overall growth and
development.
The Indian telecom market is one of the fastest growing markets in the world. It is also one of the
most competitive where new entrants are coming in and reducing rates. Our penetration has increased post
the entry of the pre-paid cards as well as the falling rates. One of the biggest successes India has witnessed
in the last two decades of reform has been in the telecom sector. Recent 3G bids from the telecom
companies where the government has raised close to Rs70, 000 crore - twice the original estimate - is an
indicator of the optimism, which the players have for the industry. By including telecommunications in
their operations, businesses can provide better services and products to their customers. For individuals,
telecommunications provides access to worldwide information and services. Public sector should be
continued in areas where their involvement is highly appropriate which will provide greater degree of
autonomy. Disinvestment programme should be so executed so as to encourage autonomy in management
with accountability, broad based ownership and improved the competition. There should be more
provision for the research and development programme of these units in order to compete in this global
competition and also to improve their efficiency in financial control, cost control and quality control.
There should be check on the excessive use of debt/outsiders’ funds and public sector enterprises should
arrange the funds from their internal resources.

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■ Indian Journal of Commerce & Management Studies ■ ISSN – 2229-5674

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www.divest.nic.in

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