Government may start strategic sale of PSUs soon

3 Oct 2015 | By Vijaya

Government is framing a formal policy regarding the sale of stakes, including transfer of control, in state-run companies as it revives the idea of privatising non-strategic public sector enterprises (PSUs).

The initial emphasis will be likely on all loss-making firms except for those that have strategic importance.

Officials from Finance Ministry and Department of Public Enterprises met recently to discuss the processes involved.

In context: Disinvestment policy of PSUs over the years

1991What is disinvestment and how did it start?

Disinvestment is the sale from the government, partly or fully, of a government-owned enterprise.

Disinvestment of a percentage of shares owned by the Government in public undertakings emerged as a policy option in the wake of economic liberalisation and structural reforms launched in 1991.

Initially, it was not conceived as privatisation of existing undertakings but as limited sales of equity to raise resources.

Rangarajan Committee recommendations

In 1993, the Rangarajan Committee recommended disinvesting up to 49% of PSUs 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.
Love Business news?
Stay updated with the latest happenings.
Strategic and non-strategic PSUs

Classification Strategic and non-strategic PSUs

In 1999, government announced that it would continue to strengthen the strategic public units and privatize non-strategic ones. Classification was done to distinguish between the two.

Strategic enterprises included defense-related, atomic energy undertakings and railway transport PSUs.

All other undertakings were treated as non-strategic.

A Department of Disinvestment was established early in 2000 to give an impetus to the programme of disinvestment and privatisation.

2004Changes to disinvestment policy

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

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

As per the new policy, commercial autonomy will be given to profit-making companies and no disinvestment for such units; and sick PSUs will be revived.

Disinvestment resumed

Disinvestment got a boost in 2009 when the government approved an action plan for disinvestment. According to this, all PSUs can be disinvested while the government retains at least 51% equity.

NIF National Investment Fund

In 2005, a "National Investment Fund" - NIF was constituted, into which the proceeds from disinvestment of Central Public Sector Enterprises were to be channelized.

Initially, 75:25 ratio of annual income from NIF was meant for financing social sector schemes and reviving/expanding other PSUs respectively.

NIF was restructured in 2013 after which it is used for recapitalizing public sector banks, railways capital expenditure, etc.

Love Business news?
Stay updated with the latest happenings.

28 Feb 2015Government sets disinvestment target of Rs.69,500 crore

During the budget speech, Finance minister Arun Jaitley unveiled an ambitious target to raise Rs.69,500 crore through divestment in 2015-16.

"This will include both disinvestment in loss-making units, and some strategic disinvestment," Jaitley said.

In 2015-16, while receipts from divestment have been estimated at Rs.41,000 crore, additional resource mobilization of Rs.28,500 crore has been estimated to flow from strategic disinvestments.

Five PSUs to be closed

In March 2015, the government said that five PSUs - three units of HMT, Hindustan Cables and Tungabhadra Steel will be closed down from the list of 65 sick PSUs.

3 Oct 2015Government may start strategic sale of PSUs soon

Strategic stake sale in the past

Between 2001-02 and 2003-04, the NDA government sold shares either through strategic stake sale or through an offer for sale to the public. These PSUs include BALCO, HZL, CMC, ITDC, VSNL, Maruti Suzuki, Jessop & Company, Hotel Corporation of India and Indian Petrochemicals.