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New Disinvestment Policy

New Disinvestment Policy

Why in news?

  • In recent budget 2021-22, government announced a new policy for central public sector enterprises (CPSEs).
  • Under the new policy, there will be a clear cut roadmap for disinvestment of government-owned firms across different sectors.
  • Under the roadmap of new policy, there will be classification of sectors into 2 groups i.e. strategic sector and non-strategic sector.
  • Government plans to raise Rs. 2.1 lakh crore through disinvestment in 2020-21

What Is Disinvestment?

  • Disinvestment means sale or liquidation of assets by the government, usually Central and state public sector enterprises, projects, or other fixed assets.
  • The government undertakes disinvestment to reduce the fiscal burden on the exchequer, or to raise money for meeting specific needs, such as to bridge the revenue shortfall from other regular sources.
  • Strategic disinvestment is the transfer of the ownership and control of a public sector entity to some other entity (mostly to a private sector entity).
    Unlike the simple disinvestment, strategic sale implies a kind of privatization.
  • The disinvestment commission defines strategic sale as the sale of a substantial portion of the Government shareholding of a central public sector enterprises (CPSE) of upto 50%, or such higher percentage as the competent authority may determine, along with transfer of management control.What Is Strategic Disinvestment?
    • There will be bare minimum presence of the public sector enterprises (approx. 3/4th holding) and remaining will be privatized or merged or subdiarized with other CPSEs or closed.
    • These are further classified into 4 categories:
      • National security: This sector includes atomic energy, space and defence
      • Critical infrastructure: This sector includes transport and telecommunication
      • Energy and minerals: Power, petroleum, coal and other minerals
      • Financial services: Banking, insurance and financial services
    • Strategic disinvestment can be approached in the following ways:
    • Minor disinvestment: The government gives away a portion of its stake but retains a majority stake, preferably at 51%, in order to retain management control.
    • Major disinvestment: The government sells off the majority of its stake and retains minor holdings in the company.
    • Compete privatisation: In this the government hands over complete control of its holdings to a private player.

    What is Non-strategic disinvestment?

    • Sectors which are not covered under strategic disinvestment will come under this category.
    • In this sector, CPSEs will be completely privatized or otherwise shall be closed.

    Disinvestment in India (Background)

    • 1991-1999: The 1990s saw the stock market listing of minority stakes in a bunch of public sector firms. There as LPG reforms but they were imposed as india was facing issue of balance of payments. India was also under pressure from IMF to open up the economy. Initially there was political resistance towards privatization, specially by socialist and communist parties in India.
    • 1999-2004: In 1999, NDA government was formed and for the first time, India started working on a slew of privatization deals. A separate ministry was formed to keep a check on disinvestment. During this period, government managed to sell off majority of stakes in numerous PSU including Balco, VSNL, Modern foods, Hindustan zinc and few hotels
    • 2004-2014: the UPA government came in office and they were not very pro-privatization. During this time, government mostly followed a renewed 1990s policy. There was slow and steady increase.

    2014-2019 (modi 1.0 policy): a bold push for disinvestment of the public

    • sector was expected soon after prime minister Narendra Modi assumed office in 2014. But dispite a clear intent to privatization, government lacked clear roadmap. The government dis invested a total of rs. 1,94,646 crore, which includes stakes of some most profitable public sector. Some PSUs were merged with other PSUs.

    Objectives of Disinvestment in India

    • To meet the budgetary needs
    • To reduce fiscal deficit
    • To improve public finances and overall economic efficiency
    • To diversify the ownership of PSU for enhancing efficiency of individual enterprise
    • To raise funds for technological upgradation, modernization and expansion of PSUs
    • To raise funds for golden handshake (VRS)
    • To introduce, competition and market discipline
    • To fund growth and development programmes
    • To encourage wider share of ownership
    • To depoliticise non-essential services
    • Transfer of Commercial Risks

    Current situation

    • The Union Budget 2021-22 has a huge focus on disinvestment and monetization of government assets.
    • The government have announced a policy of strategic disinvestment and gave clear roadmap for strategic as well as non strategic sectors privatization.
    • Assets of NHAI, Railways, Airports Authority of India, GAIL, HPCIL, will be monetized.
    • Airports under AAI in Tier II and III will be monetized as part of the National Asset Monetisation Plan. The government will also monetise sports stadiums, Sitharaman said, introducing the Budget 2021-22 in the Parliament.
    • The government will be pursuing the Strategic Disinvestment of Central PSUs more rigorously with a target to achieve INR 175,000 crore receipts from through the disinvestment.

    Strategic disinvestment of BPCL, Air India, Shipping Corporation of India,

    • Container Corporation of India, IDBI Bank, BEML, Pawan Hans, Neelachal Ispat Nigam Ltd, among others would be completed in 2021-22.

    Decision Makers Of Disinvestment

    • To fast-track the disinvestment policy, NITI Aayog would work out on the next list of central public sector companies that would be taken up for strategic disinvestment.
      NITI reccomentaditions will be studied by a group of secretaries on disinvestment
    • GOM will take final call on recommendation of group of secretaries and forward it to DIPAM (department of investment and public asset management)
    • DIPAM will draft the requisite documents and forward for approval of CCEA (cabinet committee on economic affairs)

    Significance of this policy

    • The policy marks a huge shift in the government’s attitude towards disinvestment of state run companies.
    • It indicated that this is a policy which will operate over a period of next few years.
    • This shows the government’s intention to involve the private sector and global investors to bring in efficiency and provide much needed cash to help revive the economy during COVID 19 pandemic.


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