Policy of Disinvestment

You must keep in mind the following policies of Disinvestment:

Past Disinvestment Policy

The policy of disinvestment has largely evolved through the policy statements of former Finance Ministers in their Budget Speeches. The policy as evolved is enumerated below:

1. In the Interim Budget of 1991-92, it was declared that the Government would disinvest up to 20% of its equity in some PSEs in favour of mutual funds and financial and institutional investors in public sector.

2. In the Budget speech of 1992-93, the cap of 20% was reinstated and the list of eligible investors was extended to involve FIIs, employees and OCBs.

3. In April 1993, the Rangarajan Committee suggested disinvesting up to 49% of PSEs equity for industries explicitly reserved for the public sector and over 74% in other industries. However, the then Government did not take any decision on the Committee’s recommendations.

4. In 1996, as per the Common Minimum Programme (CMP), the Budget speech of 1996-97 declared the establishing of Disinvestment Commission for 3 years (for more details about the Disinvestment Commission,). CMP also emphasised adding more transparency to the disinvestment process and evaluate the non-core areas of public sector.

5. In the Budget speech of 1998-99, it was declared that the Government shareholding in CPSEs should be brought down to 26% on case-to-case basis, except strategic CPSEs where the Government would retain majority shareholding. The interest of workers was to be safeguarded in all the cases. For this objective, on 16 March 1999, the Government categorised the PSEs into Strategic and Non-Strategic areas. It was determined that Strategic PSEs would be those in areas of:

(a) Arms and ammunition and allied items of defence equipment, defence aircraft and warships.

(b) Atomic energy (except in the areas related to the generation of nuclear power and applications of radiation and radio-isotopes to agriculture, medicine and non-strategic industries).

(c) Railway transport.

You must understand that all other PSEs were to be considered non-strategic.

1. In the Budget speech of 1999-2000, it was declared that the Government would continue to strengthen the Strategic units and “privatising” the Non-Strategic ones through gradual disinvestment or strategic sale and develop viable rehabilitation strategies for weak units.

2. The 2000-01 Budget speech emphasised on restructuring and revitalisation of viable CPSEs, closure of PSEs which cannot be revived; bringing down Government shareholdings in Non-Strategic CPSEs to 26% or lower, if necessary, and protection of the interest of workers. The receipts from disinvestment would be used for the social sector, rearrangement of CPSEs and for retirement of public debt.

3. In the Suo moto statement of 2002, specific objective was given to the disinvestment Policy–creation of new assets, modernisation and upgradation of PSEs, generation of employment and retiring of public debt.

4. In the Budget speech of 2003-04, the Government declared details regarding the establishing of Disinvestment Fund and Asset Management Company to hold, manage and dispose the residual holdings of Government.

5. In 2004, with the change in the Government, there was a change in the outlook of Disinvestment Policy.

It is important to note that the UPA Government pledged to transfer full managerial control and commercial autonomy to successful, profit-making companies functioning in competitive environment; they won’t be privatised. ‘Navratna’ companies can procure resources from the capital market. Efforts will be made to modernise and restructure sick PSEs.

1. It favoured sale of small proportions of Government equity through IPO/FPO without altering the character of PSEs. In relation to this, it sanctioned listing of unlisted profitable CPSEs subject to residual equity of the Government remaining at least 51% and Government recollecting the control of management.

2. It also comprised the formation of the ‘National Investment Fund’, where the advances from disinvestment of CPSEs would be channelised. 75% of annual income of NIF would be used to finance selected Social Sector Schemes—health, education, employment and the rest 25% to fulfil the capital investment needs of profitable and revivable CPSEs.

You may already be aware that on 27 January 2005, the Government sanctioned in principle:

1. Listing of currently unlisted profitable CPSEs, each with a Net Worth in excess of Rs. 200 crore, through an Initial Public Offering (IPO) either in combination with a fresh equity issue by the CPSE associated or independently by the Government, on a case-by-case basis, subject to the residual equity of the Government remaining at least 51 per cent and the Government retaining management control of the CPSE.

2. Sale of minority shareholding of the Government in listed, lucrative CPSEs either in conjunction with a Public Issue of fresh equity by the CPSE apprehensive or independently by the Government, subject to the residual equity of the Government remaining at least 51% and the Government retaining management control of the CPSE.

3. Constitution of a “National Investment Fund.”

Notes: On 25 November 2005, the Government decided, in principle, to list large, profitable CPSEs on domestic stock exchanges and to selectively sell small portions of equity in listed, profitable CPSEs (other than the Navratnas).



Present Policy of Disinvestment

It is important to note that the present disinvestment policy has been pronounced in the recent President’s addresses to Joint Sessions of Parliament and the Finance Minister’s recent Parliament Budget Speeches.

The salient features of the Policy are:

1. Public Sector Undertakings are the wealth of the Nation and this wealth should rest in the hands of the people.

2. Citizens have every right to own part of the shares of Public Sector Undertakings.

3. When pursuing disinvestment, Government has to retain majority shareholding, i.e., at least 51% and management control of the Public Sector Undertakings.

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