Industrial
Promotion Policies - Central Government
Disinvestment Policy
Introduction
The policy as stated in the National
Common Minimum Programme of the Government is given
in Para
1.1. The address of the President to the Joint Session
of Parliament on 27th June 2004 and the Budget speech
of the Finance Ministry dated 8th July 2004 for the
year 2004-05 provide further direction and are available
in Para 1.2 and Para 1.3 respectively.
Para 2 traces the evolution of the Disinvestment Policy
since 1991, as brought out in the Address of the President
to both houses of Parliament, the Speeches of Finance
Ministers and related documents.
Present Policy
1.1 National Common Minimum Programme
The policy of the Government as stated in the National
Common Minimum Programme of May, 2004 is as follows:
"The Government is committed to a strong and effective
Public Sector whose social objectives are met by its
commercial functioning. But for this, there is need
for selectivity and a strategic focus. It is pledged
to devolve full managerial and commercial autonomy to
successful, profit-making Companies operating in a competitive
environment. Generally, profit-making Companies will
not be privatised.
All privatisations will be considered on a transparent
and consultative case-by-case basis. The existing "Navaratna"
companies will be retained in the public sector while
these companies raise resources from the capital market.
While every effort will be made to modernize and restructure
sick public sector companies and revive sick industry,
chronically loss-making companies will either be sold-off,
or closed, after all workers have got their legitimate
dues and compensation. The Government will induct private
industry to turn around companies that have potential
for revival.
The Government believes that privatisation should increase
competition, not decrease it. It will not support the
emergence of any monopoly that only restricts competition.
It also believes that there must be a direct link between
privatisation and social needs - like, for example,
the use of privatisation revenues for designated social
sector schemes. Public sector companies and nationalized
banks will be encouraged to enter the capital market
to raise resources and offer new investment avenues
to retail investors."
1.1 a National Investment Fund
Government decided on the 27th January 2005 to constitute
a Fund into which the realisation from the sale of minority
shareholding of the Government in profitable PSEs would
be channelised. The Fund would be maintained outside
the Consolidated fund of India and would be professionally
managed by selected Public Sector Financial entities,
which have the requisite experience, to provide sustainable
returns to the Government without affecting the corpus.
This Fund would be called "National Investment
Fund" to denote the permanent nature of the corpus
and the objectives to which its income is to be applied.
A detailed plan for the constitution of the Fund and
the specific schemes to be financed from its income
would be prepared separately. The broad investment objectives
will be:
(i) Investment in social sector projects which promote
education, health care and employment
(ii) Capital investment in selected profitable and
revivable Public sector Enterprises that yield adequate
returns in order to enlarge their capital base to finance
expansion/diversification.
1.2 Excerpts from the Address by the President Dr.
APJ Abdul Kalam to the Joint Session of Parliament on
7thJune, 2004.
"The Government is committed to a strong and effective
public sector, whose social objectives are met by its
commercial functioning. But for this, there is need
for selectivity and a strategic focus. My government
will devolve full managerial and commercial autonomy
to successful, profit-making companies operating in
a competitive environment. Privatisation will be considered
on a case-by-case basis. Chronically loss-making companies
will either be sold-off, or closed, after workers get
their legitimate dues and compensation. Private industry
will be inducted to turn-around companies that have
potential for revival.
My government believes that privatisation should increase
competition, not decrease it. We also believe that there
must be a direct link between privatisation and social
needs, like the use of revenues generated through privatisation
for designated social sector schemes. Public Sector
companies and Nationalised Banks will be encouraged
to enter the capital market to raise resources and offer
new investment avenues to retail investors.
1.3 Excerpts from the Budget Speech for 2004-2005 of
the Finance Minister Shri P. Chidambaram on 8th July
2004
"The NCMP has declared the Government's policy
on public sector enterprises (PSEs). While sick or ailing
public sector enterprises have stirred a debate, not
enough attention is paid to the healthy PSEs. I am happy
to announce that in 2004-05 the Government will provide
equity support of Rs. 14,194 crore and loans of Rs.
2,132 crore to Central PSEs (including Railways). Major
investments will be made in PSEs falling in the sectors
of power, telecommunications, railways, roads, petroleum,
coal and civil aviation. I am sure Hon'ble Members will
appreciate the deep commitment of Government to a strong
and effective public sector operating in a competitive
environment.
There is, of course, another side to the public sector.
This side is beset with problems, and we must address
them with responsibility and courage. Disinvestment
and privatization are useful economic tools. We will
selectively employ these tools, consistent with the
declared policy. As a first step, I propose to establish
a Board for Reconstruction of Public Sector Enterprises
(BRPSE). The Board will advise the Government on the
measures to be taken to restructure PSEs, including
cases where disinvestment or closure or sale is justified.
One of our Navaratna companies, NTPC, has filed a prospectus
with SEBI to raise capital through a public issue. Consequently,
Government's holding in NTPC will be marginally diluted.
In order to extract value for its holding and to compensate
the effect of dilution, Government intends to piggy-back
on the public issue of NTPC and disinvest approximately
five per cent of its holding. This and some other cases
which are under examination are expected to yield a
sum of Rs. 4000 crore in the current year. While the
disinvestment revenues will be part of the Consolidated
Fund of India, I shall, while presenting the Budget
for 2005-06, report to the House the manner in which
the said revenues have been or will be applied for specified
social sector schemes.
The NCMP contains clear policy guidelines regarding
disinvestment in PSEs. As long as Government retains
control over the PSE, and its public sector character
is not affected. Government may dilute its equity and
raise resources to meet the social needs of the people.
I propose to ask the BRPSE to examine each case objectively
and make recommendations on disinvestment, consistent
with NCMP.
I am also happy to announce that I have taken the business
of restructuring quite seriously. Hindustan Antibiotics
Limited will be given financial support for restructuring.
A rescue package has been worked out for Indian Telephone
Industries (ITI), and ITI will be given Rs. 508 crore
to remain out of the net of the BIFR."
" It has been decided that Government would disinvest
up to 20 per cent of its equity in selected public sector
undertakings, in favour of mutual funds and financial
or investment institutions in the public sector. The
disinvestment, which would broad base the equity, improve
management and enhance the availability of resources
for these enterprises, is also expected to yield Rs.
2,500 crore to the exchequer in1991-92. The modalities
and details of implementing this decision, which are
being worked out, would be announced separately."The
policy, as enunciated by the Government, under the Prime
Minister Shri Chandrashekhar 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 stated to be to broad-base equity,
improve management, enhance availability of resources
for these PSEs and yield resources for the exchequer.
2.2 Industrial Policy Statement
of 24th July, 1991
" In the case of selected enterprises, part of
Government holdings in the equity share capital of these
enterprises will be disinvested in order to provide
further market discipline to the performance of public
enterprises ".
2.3 Budget speech: 1991-92
"In order to raise resources, encourage wider public
participation and promote greater accountability, up
to 20 per cent of Government equity in selected public
sector undertakings would be offered to mutual funds
and investment institutions in the public sector, as
also to workers in these firms".
2.4 Report of the Committee on
the Disinvestment of Shares in PSEs (Rangarajan Committee):
April 1993
The Rangarajan Committee recommendations emphasised
the need for substantial disinvestment. 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, disinvestment could take
place to the extent of 74%. In all other cases, it recommended
100% divestment of Government stake. Holding of 51%
or more equity by the Government was recommended only
for 6 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
However, the Government did not take any decision on
the recommendations of the Rangarajan Committee.
2.5 Budget Speech by Finance Minister Shri P. Chidambaram
(1996-97) on 22nd July ,1996
" Government has approved the proposal to establish
a Disinvestment Commission. Any decision to disinvest
will be taken and implemented in a transparent manner.
Revenues generated from such disinvestment will be utilised
for allocations for education and health and for creating
a fund to strengthen Public Sector Enterprises. The
interim budget for 1996-97 took credit for Rs. 5000
crore through disinvestment. I propose to take credit
for the same amount."
Pursuant to the above policy of the United Front Government,
a Disinvestment Commission was set up in 1996. By August
1999, it made recommendations on 58 PSEs. The recommendations
indicated a shift from public offerings to strategic
/ trade sales, with transfer of management.
2.7 Budget Speech by Finance Minister
Shri P. Chidambaram (1997-98) on 28th February, 1997
" The Commission has observed " The essence
of a long-term disinvestment strategy should be not
only to enhance budgetary receipts, but also minimise
budgetary support towards unprofitable units while ensuring
their long-term viability and sustainable levels of
employment in them." Government agrees with this
view and I would appeal to Hon'ble Members to take a
positive view of disinvestment."
2.8 Budget Speech by Shri Yashwant
Sinha ( 1998 -99) on 1st June, 1998
"Government has also decided that in the generality
of cases, the Government shareholding in public sector
enterprises will be brought down to 26per cent. In cases
of public sector enterprises involving strategic considerations,
government will continue to retain majority holding. The
interest of workers shall be protected in all cases".
2.9 Budget Speech by Shri Yashwant
Sinha ( 1999-2000) on 27th February, 1999
"Government's strategy towards public sector enterprises
will continue to encompass a judicious mix of strengthening
strategic units, privatising non-strategic ones through
gradual disinvestment or strategic sale and devising
viable rehabilitation strategies for weak units".
2.10 Strategic & Non-strategic
Classification
On 16th March 1999, the Government classified the Public
Sector Enterprises into strategic and non-strategic
areas for the purpose of disinvestment. It was decided
that the Strategic Public Sector Enterprises would be
those in the areas of:
Arms and ammunitions 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 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.
A decision in regard to the percentage of disinvestment
i.e., Government stake going down to less than 51% or
to 26%, would be taken on the following considerations:
Whether the industrial sector requires the presence
of the public sector as a countervailing force to
prevent concentration of power in private hands, and
Whether the industrial sector requires a proper
regulatory mechanism to protect the consumer interests
before Public Sector Enterprises are privatised.
2.11 Excerpts from the Address by the
President Shri K. R. Narayanan to the Joint Session
of Parliament (February, 2001)
"The public sector has played a vital role in
the development of our economy. However, the nature
of this role cannot remain frozen to what it was conceived
fifty years ago - a time when the technological landscape,
and the national and international economic environment
were so very different. The private sector in India
has come of age, contributing substantially to our nation-building
process. Therefore, both the public sector and private
sector need to be viewed as mutually complementary parts
of the national sector. The private sector must assume
greater public responsibilities just as the public sector
needs to focus more on achieving results in a highly
competitive market. While some public enterprises are
making profits, quite a few have accumulated huge losses.
With public finances under intense pressure, Governments
are just not able to sustain them much longer. Accordingly,
the Centre as well as several State Governments are
compelled to embark on a programme of disinvestment.
The Government's approach to PSUs has a three-fold
objective: revival of potentially viable enterprises;
closing down of those PSUs that cannot be revived; and
bringing down Government equity in non-strategic PSUs
to 26 percent or lower. Interests of workers will be
fully protected through attractive VRS and other measures.
This programme has already achieved some initial successes.
The Government has decided to disinvest a substantial
part of its equity in enterprises such as Indian Airlines,
Air India, ITDC, IPCL, VSNL, CMC, BALCO, Hindustan Zinc,
and Maruti Udyog. Where necessary, strategic partners
would be selected through a transparent process".
2.12 Budget Speech: 2000 - 2001
by Shri Yashwant Sinha on 29th February, 2000.
"Disinvestment/Privatisation/Public Sector Restructuring
- Government's policy towards the public sector is clear
and unambiguous. Its main elements are: -
Restructure and revive potentially viable PSUs;
Close down PSUs which cannot be revived;
Bring down Government equity in all non-strategic
PSUs to 26% or lower, if necessary; and
Fully protect the interests of workers.
Government have recently established a new Department
for Disinvestment to establish a systematic policy approach
to disinvestment and privatisation and to give a fresh
impetus to this programme, which will emphasize increasingly
on strategic sales of identified PSUs. Government equity
in all non-strategic PSUs will be reduced to 26% or
less and the interests of the workers will be fully
protected. The entire receipt from disinvestment and
privatisation will be used for meeting expenditure in
social sectors, restructuring of PSUs and retiring public
debt."
2.13 Budget Speech: 2001 - 2002
by Shri Yashwant Sinha on 28th February, 2001.
"Our public sector has expanded in almost every area
of economic activity. In many ways, it has served the
nation well; capability has been developed all round and
a strong industrial base built up. These enterprises must
now be strengthened to compete and prosper in the new
environment. Last year I had defined government's policy
in this regard clearly.
Given the advanced stage of the process of disinvestment
in many of these companies, I am emboldened to take
credit for a receipt of Rs 12000 crore from disinvestment
during the next year. An amount of Rs 7000 crore out
of this will be used for providing restructuring assistance
to PSUs, safety net to workers and reduction of debt
burden. A sum of Rs 5000 crore will be used to provide
additional budgetary support for the Plan primarily
in the social and infrastructure sectors. This additional
allocation for the plan will be contingent upon realisation
of the anticipated receipts. In consultation with Planning
Commission I shall come up with sectoral allocation
proposals during the course of the year."Additional
budgetary support for the Plan, primarily in the social
and infrastructure sectors (contingent upon realisation
of the anticipated receipt.)
2.14 Excerpts from the Address
by the President Shri K. R. Narayanan to the Joint Session
of Parliament (February, 2002)
"The Public sector has played a laudable role in
enabling our country to achieve the national objective
of self-reliance. However, the significantly changed
economic environment that now prevails both in India
and globally makes it imperative for both the public
sector and the private sector to become competitive.
Learning from our experience, especially over the last
decade, it is evident that disinvestment in public sector
enterprises is no longer a matter of choice, but an
imperative. The prolonged fiscal haemorrhage from the
majority of these enterprises cannot be sustained any
longer. The disinvestment policy and the transparent
procedures adopted for disinvestment have now been widely
accepted and the shift in emphasis from disinvestment
of minority shares to strategic sale has yielded excellent
results. The Government has taken two major initiatives
to improve the safety net for the workers of PSUs. The
first enhanced VRS benefits in those PSUs where wage
revision had not taken place in 1992 or 1997. The second
increased training opportunities for self-employment
for workers retiring under VRS."
2.15 Excerpts from the Budget
Speech for 2002-03 of the Finance Minister Shri Yashwant
Sinha on 28th February, 2002.
"With the streamlined procedure for disinvestment
and privatisation, I am happy to report that the Government
has now completed strategic sales in 7 public sector
companies and some hotels properties of the Hotel Corporation
of India (HCI) and the India Tourism Development Corporation
(ITDC). The change in approach from the disinvestment
of small lots of shares to strategic sales of blocks
of shares to strategic investors has improved the price
earning ratios obtained. We expect to complete the disinvestment
in another 6 companies and the remaining hotels in HCI
and ITDC this year. Disinvestment receipts for the present
year are estimated at Rs. 5,000 crore excluding the
special dividend from VSNL of Rs. 1,887 crore. Encouraged
by these results, I am once again taking credit for
a receipt of Rs. 12,000 crore from disinvestment next
year."
2.16 Suo - Moto Statement of
Shri Arun Shourie, Minister of Disinvestment, made in
both Houses of Parliament on 9th December, 2002
The main objective of disinvestment is to put national
resources and assets to optimal use and in particular
to unleash the productive potential inherent in our
public sector enterprises. The policy of disinvestment
specifically aims at:
Modernization and Upgradation of Public Sector
Enterprises;
Creation of new assets;
Generating of employment; and
Retiring of public debt.
Government would continue to ensure that disinvestment
does not result in alienation of national assets, which,
through the process of disinvestment, remain where they
are. It will also ensure that disinvestment does not
result in private monopolies.
In order to provide complete visibility to the Government's
continued commitment of utilisation of disinvestment
proceeds for social and infrastructure sectors, the
Government would set up a Disinvestment Proceeds Fund.
This Fund will be used for financing fresh employment
opportunities and investment, and for retirement of
public debt.
For the disinvestment of natural asset companies, the
Ministry of Finance and the Ministry of Disinvestment
will work out guidelines.
The Ministry of Finance will also prepare for consideration
of the Cabinet Committee on Disinvestment a paper on
the feasibility and modalities of setting up an Asset
Management Company to hold, manage and dispose the residual
holding of the Government in the companies in which
Government equity has been disinvested to a strategic
partner.
2.17 Excerpts from the Budget Speech
for 2003-04 of the Finance Minister Shri Jaswant Singh
on 28thFebruary, 2003.
' I am confident that the pace of disinvestment will
accelerate in the coming year. I wish to also state
that details about the already announced Disinvestment
Fund and Asset Management Company, to hold residual
shares post disinvestment, shall be finalized early
in 2003-04…. disinvestment is not merely for mobilizing
revenues for the Government, it is mainly for unlocking
the productive potential of these undertakings, and
for reorienting the Government, away from business and
towards the business of governance."
