If some part of the original investment made by the government is to be sold and realised for the purpose of expanding activities of the state in certain other areas considered urgent, it should not be regarded as something undesirable, he says in the book `Indian economy: Essays on money and finance'.

Disinvestment, even when it does not lead to transfer of ownership, can have a salutary effect on management. There will be a new sense of accountability which goes beyond being responsible only to the government, says Rangarajan.He feels that reform of the public sector enterprises is in some ways related to the process of disinvestment but has a distinct importance by itself.

There will be a very large number of public enterprises still operating in the core and strategic sectors where control will be withthe government, he says. To make them more efficient, productive and financially strong is a task that must be addressed to independent of the exercise relating to disinvestment.

To sustain the interest of the enterprises in the process of disinvestment, it may be useful to set aside a certain percentage of the profits - say 10 per cent as recommended by the committee on disinvestment - to be given to the enterprises themselves for their own expansion, suggests Rangarajan.

He warns that the process has to take into account the conditions in the capital market. It should not result in "crowding out" resources available for the private sector.