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 III.1
Disinvestment Policy |
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(1)
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The
Initial Phase The policy of the Government on disinvestment has evolved over a period . It can be briefly stated in the chronological order thus: |
| A. |
Interim Budget -1991-92 The policy was to divest up to 20% of the Government equity in selected PSEs in favour of public sector institutional investors. The objective of the policy was to broad-base equity, improve management, enhance availability of resources for these PSEs and yield resources for the exchequer. |
| B. |
Industrial Policy Statement of 24th July,1991 The Industrial Policy Statement of 24th July, 1991 stated that the Government would divest part Government holdings in selected PSEs but did not place any cap on the extent of disinvestments. Nor did it restrict disinvestments in favour of any particular class of investors. The objective for disinvestments was to provide further market discipline to the performance of public enterprises" |
| C. |
Budget speech : 1991-92 In this pronouncement, the cap of 20% for disinvestments was reinstated and the eligible investors' universe was again modified to consist of mutual funds and investment institutions in the public sector, and the workers in these firms.The objectives too were modified, the modified objectives being : "to raise resources, encourage wider public participation and promote greater accountability" |
| D. | Report
of the Committee on the Disinvestment of Shares in PSEs (Rangarajan Committee):
April 1993 The Rangarajan Committee recommendations emphasized the need for substantial disinvestments. It stated that the percentage of equity to be divested could be up to 49% for industries explicitly reserved for the public sector. It recommended that in exceptional cases, such as the enterprises, which had a dominant market share or where separate identity had to be maintained for strategic reasons, the target public ownership level could be kept at 26%, that is, disinvestments could take place to the extent of 74%. In all other cases, it recommended 100% divestment of Government stake. Holding 51% or more equity by the Government was recommended only for six Schedule industries, namely: |
| I. | Coal and lignite |
| II. | Mineral oils |
| III. | Arms, ammunition and defence equipment |
| IV. | Atomic energy |
| V. | Radioactive minerals, & |
| VI. | Railway transport |
| E. |
The Common Minimum Programme, 1996. The highlights of the policy were as follow : 
To carefully examine the public sector non-core strategic areas
To set up a Disinvestment Commission for advising on the disinvestment related
matters.
To take and implement decisions to disinvest in a transparent manner
Job security, opportunities for retraining and redeployment to be assured.
No disinvestment objective was, however, mentioned in the policy statement. |
| F. |
Disinvestment Commission Recommendations: Feb.1997-
Oct. 1999 Pursuant to the above policy, a Disinvestment Commission was formed. It made recommendations on 58 PSEs. Further details, are indicated in para IV.1. |
| (2) | The Second Phase |
| A. |
Budget Speech: 1998-99 In its first budgetary pronouncement, the current Government decided to bring down Government shareholding in the PSUs to 26% in the generality of cases, (thus facilitating ownership changes, as was recommended by the Disinvestment Commission). It , however, stated that the Government would retain majority holding in PSEs involving Strategic considerations and that the interests of workers would be protected in all cases. |
| B. |
Budget speech: 1999-2000 The policy for 1999-2000 was to strengthen strategic PSUs, privatise non-strategic PSUs through gradual disinvestment or strategic sale and devise viable rehabilitation strategies for weak units. A highlight of the policy was that the expression 'privatisation' was used for the first time. |
| Strategic
& Non-strategic Classification On 16th March 1999, for the purposes of disinvestment, Government classified the PSUs into strategic and non-strategic. It was decided that the Strategic public sector enterprises would be those in the areas of : |
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| a) | Arms and ammunitions and the allied items of defence equipment, defence air-crafts 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 |
| All other public sector enterprises were to be considered non-strategic. For the non-strategic public sector enterprises, it was decided that the reduction of Government stake to 26% would not be automatic and the manner and pace of doing so would be worked out on a case-to-case basis. It was also decided that a decision in regard to the percentage of disinvestments i.e. Government stake going gown to less than 51% or to 26%, would be taken on the following considerations: | |
| a) | Whether the Industrial sector requires the presence of the public sector as a countervailing force to prevent concentration of power in private hands, and |
| b) | Whether the Industrial sector requires a proper regulatory mechanism to protect the consumer interests before Public Sector Enterprises are privatised. |
| C. |
Budget speech: 2000 - 2001The
highlights of the policy for the year 2000-01 were that for the first time
the Government made the statement that it was prepared to reduce its stake
in the non-strategic PSEs even below 26% if necessary, that there would
be increasing emphasis on strategic sales and the entire proceeds from disinvestments/privatisation
would be deployed in social sector, restructure of PSEs and retirement of
public debt. The main elements of the disinvestment policy are as follow : |
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To restructure and revive potentially viable PSEs
To close down PSEs which cannot be revived.
To bring down Government equity in all non-strategic PSEs to 26% or lower,
if necessary.
To fully protect the interests of workers. emphasize increasingly on strategic
sales of identified PSUs
To use the entire receipt from disinvestment and privatisation for meeting
expenditure in social sectors, restructuring of PSUs
and retiring public debt. |
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With
the exception of one case (MFIL), only minority stakes were sold in different
companies till 1999-2000. Government have now embarked upon majority sales
under the post 1998 policy with emphasis on strategic sales (2000-01 budget
speech). The disadvantages of sale of minority stake by Government are
as follow: With the limited holding remaining with the Government after minority sales, only small stakes can be offered to the strategic partner if it is decided to go for a strategic sale subsequently. This reduces the possible higher realizations for the Government, as under the SEBI Code, the strategic partner has to offer the higher price to private shareholders (through open offer) also. |
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