Disinvestment Policy in India


Ajit Kumar AJIT KUMARWISDOM IAS, New Delhi.

Disinvestment in India is part of the structural reforms package initiated in 1991 that also included changes in industrial policy, foreign trade and investment regime.
The undercurrent was that the government's core competence is not in the area of business. Therefore, it was best left to the private sector. The objective was also to improve the efficiency and competitiveness of the PSUs, and increase its access to finance, modern technology and managerial practices. There were also other objectives like raising resources, encouraging wider public participation, and promoting accountability.
Approach for Disinvestment
On 5th November 2009, Government approved the following action plan for disinvestment in profit making government companies:
(i) 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.
(ii) Unlisted CPSEs with no accumulated losses and having earned net profit in three preceding consecutive years are to be listed.
(iii) 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.
(iv) In all cases of disinvestment, the Government would retain at least 51% equity and the management control.
(v) All cases of disinvestment are to be decided on a case by case basis.
(vi) The Department of Disinvestment is to identify CPSEs in consultation with respective administrative Ministries and submit proposal to Government in cases requiring Offer for Sale of Government equity.
Modi Government
The present disinvestment policy has been articulated in the recent President’s addresses to Joint Sessions of Parliament (2014) and the Finance Minister’s Budget Speeches (2014-15).
 The salient features of the Policy are:
(i) Citizens have every right to own part of the shares of Public Sector Undertakings.
(ii) Public Sector Undertakings are the wealth of the Nation and this wealth should rest in the hands of the people.
(iii) While pursuing disinvestment, Government has to retain majority shareholding, i.e. at least 51% and management control of the Public Sector Undertakings


Timeline of Disinvestment in India


1991
- Government announced 20% disinvestment in selected PSUs.
- The shares were sold to Mutual funds and financial institutions (UTI, EPFO, LIC etc.)
1992
- To sells shares to FIIs, PSU employees and banks.
1993
Rangarajan Committee suggests 49% disinvestment in PSUs reserved for public sector, and 74% disinvestment in all other PSUs, but government did not implement them.
1996
Disinvestment commission under GV Ramakrishna was setup. It was a non-statutory, advisory body (similar to UPA’s NAC).
1998-2000
Vajpayee Government classifies PSUs into two parts – (i) Strategic: arms-ammunition, railway, nuke energy etc.in which disinvestment was not allowed; (ii) Non-strategic: those not in the strategic category. Government decided to do disinvestment in a phased manner. Hindustan Zinc, BALCO, Maruti disinvestment were taken up.
2004
UPA-1 government comes into power, Common Minimum program (CMP) updates disinvestment policy
(i) Sick PSUs to be revived
(ii) Decided to not to disinvest in profit making PSUs
(iii) PSUs to get commercial autonomy
2005
National investment fund (NIF) to be established to put in disinvested amount.
2005-09
Disinvestment remained stagnant because Left allies of the UPA Government blocked it.
2009 onwards
- UPA-2 government without left parties resumes disinvestment process.
- All PSUs can be disinvested, but upper cap was 49%
- Disinvestment method adopted was only ‘public offer.’
2013-14
Finance minister Chidambaram aimed to received 40,000 crores from disinvestment of Indian Oil, BHEL, NHPC, Neyveli lignite etc. but hardly managed to get ~16,000 crores.
2014
- Modi cabinet approves disinvestment in NHPC, Coal India, ONGC
- 6 EPICFAIL PSUs will be closed down.
- 5 loss making but viable PSUs will be revived

Saturday, 27th Dec 2014, 10:07:01 PM

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