Past Disinvestment Policy

The present disinvestment policy has been articulated 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:

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

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

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

Approach for Disinvestment

On 5th November 2009, Government approved the following action plan for disinvestment in profit making government companies:

  • Already listed profitable CPSEs (not meeting mandatory shareholding of 10%) are to be made compliant by ‘Offer for Sale’ by Government or by the CPSEs through issue of fresh shares or a combination of both

  • Unlisted CPSEs with no accumulated losses and having earned net profit in three preceding consecutive years are to be listed

  • Follow-on public offers would be considered taking into consideration the needs for capital investment of CPSE, on a case by case basis, and Government could simultaneously or independently offer a portion of its equity shareholding

  • In all cases of disinvestment, the Government would retain at least 51% equity and the management control

  • All cases of disinvestment are to be decided on a case by case basis

  • The Department of Investment and Public Asset Management is to identify CPSEs in consultation with respective administrative Ministries and submit proposal to Government in cases requiring Offer for Sale of Government equity

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

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

  • In the Budget speech of 1992-93, the cap of 20% was reinstated and the list of eligible investors was enlarged to include FIIs, employees and OCBs.

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

  • In 1996, as per the Common Minimum Programme (CMP), the Budget speech of 1996-97 announced the setting up of Disinvestment Commission for 3 years (For more details about the Disinvestment Commission, click here). CMP also emphasized adding more transparency to the disinvestment process and examine the non - core areas of public sector.

  • In the Budget speech of 1998-99, it was announced that the Government shareholding in CPSEs should be brought down to 26% on case-to-case basis, excluding strategic CPSEs where the Government would retain majority shareholding. The interest of workers was to be protected in all the cases. For this purpose, on 16 March 1999, the Government classified the PSEs into Strategic and Non-Strategic areas. It was decided that Strategic PSEs would be those in areas of:

  • Arms and ammunition and allied items of defence equipment, defence aircraft and warships

  • 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)

  • Railway transport
          All other PSEs were to be considered Non-Strategic.

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

  • The 2000-01 Budget speech focused on restructuring and revival of viable CPSEs, closure of PSEs which can not 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, restructuring of CPSEs and for retirement of public debt.

  • In the suo motu statement of 2002, specific aim was given to the Disinvestment Policy- modernization and upgradation of PSEs, creation of new assets, generation of employment and retiring of public debt.

  • In the Budget speech of 2003-04, the Government announced details regarding the setting up of Disinvestment Fund and Asset Management Company to hold, manage and dispose the residual holdings of Government.

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

In May 2004, the Government adopted National Common Minimum Programme, which outlined the policy of the Government with respect to the Public Sector.

The UPA Government pledged to devolve full managerial control and commercial autonomy to successful, profit-making companies operating in competitive environment; they won’t be privatized. ‘Navratna’ companies can raise resources from the capital market. Efforts will be made to modernize and restructure sick PSEs.

  • It favoured sale of small proportions of Government equity through IPO/FPO without changing the character of PSEs. In regard to this, it approved listing of unlisted profitable CPSEs subject to residual equity of the Government remaining at least 51% and Government retaining the control of management.

  • It also constituted the formation of the ‘National Investment Fund’, where the proceeds from disinvestment of CPSEs would be channelized. 75% of annual income of NIF would be used to finance selected Social Sector Schemes- education, health, employment and the rest 25% to meet the capital investment requirements of profitable and revivable CPSEs.

On 27 January 2005, the Government approved in principle:

  • 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 conjunction with a fresh equity issue by the CPSE concerned or independently by the Government, on a case-by-case basis, subject to the residual equity of the Government remaining at least 51% and the Government retaining management control of the CPSE

  • Sale of minority shareholding of the Government in listed, profitable CPSEs either in conjunction with a Public Issue of fresh equity by the CPSE concerned 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

  • Constitution of a “National Investment Fund”

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).