Click for Hindi

EVOLUTION OF DISINVESTMENT POLICY IN INDIA:

 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 1991-92, it was announced that Government would divest upto 20% of its equity in selected PSU’s in favor of mutual funds, 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 investor was enlarged to include FII’s, employees and OCB’s.

·         In April, 1993, Rangrajan committee recommended to divest upto 49% of PSE’s equity for industries explicitly reserved for the public sector and over 74% in other industries.  But Government did not take any decision on recommendations.

·         In 1996, as per the Common Minimum Programme, the Budget Speech 1996-97 announced the setting up of Disinvestment Commission for 3 years.  CMP also emphasized to add more transparency to disinvestment process and examine the non core areas of public sector.

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

·         Arms and ammunition and the allied items of defence equipment, defence aircrafts 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 PSE’s were to be considered non strategic. 

• In 1999-2000 Budget Speech it was announced that Government will 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 restructure and revival of viable CPSEs; close down  PSEs which cannot be revived; bring down Government shareholdings in non-strategic CPSEs to 26% or lower, if necessary; and protection of the interest of workers.  The receipts from disinvestment will be used for social sectors, restructuring of CPSEs and for retirement of public debt. 
• The suo-motu statement 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 for 2003-04, 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, Government adopted National Common Minimum Programme, which outlines the policy of Government with respect to 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 Public sector companies.

·         It favoured sale of small proportions of Government equity through IPO/FPO without changing the character of PSE’s.  In regard to this, it approved listing of unlisted profitable CPSE’s subject to residual equity of the Government remaining atleast 51% and Government retaining the control of management. 

·         It also constituted the formation of ‘National Investment Fund’.  The proceeds from disinvestment of CPSE’s will be channelized into NIF.  75% of annual income of NIF will 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 CPSE’s.

·         On 27^th January, 2005 the Government, approved in principle:

a.    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 per cent and the Government retaining management control of the CPSE;

b.    the 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 per cent and the Government retaining management control of the CPSE; and

c.    Constitution of a “National Investment Fund”.

On 25^th November, 2005, 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).