Disinvestment
Notes
Disinvestment is the sale or liquidation of the Government's equity in public sector enterprises. Minority disinvestment (the Government keeps more than 50%), majority disinvestment (it sells more than 50% but may retain a stake), and strategic sale (transfer of management control, amounting to privatisation).
Methods: Offer for Sale (OFS), IPO/FPO, strategic sale, ETFs (CPSE ETF 2014, Bharat 22 ETF 2017), buyback and employee share schemes.
History
- Started in 1991-92 (small stake sales); the Rangarajan Committee (1993) and the Disinvestment Commission (1996, G.V. Ramakrishna).
- Department of Disinvestment (1999), a Ministry of Disinvestment (2001); the National Investment Fund (2005) to channel proceeds to social sectors; since 2016, DIPAM (Department of Investment and Public Asset Management) in the Finance Ministry.
- Strategic sales: Modern Foods (2000, the first), BALCO (2001), VSNL (2002), Air India (sold to the Tata group in 2022); the LIC IPO (May 2022), India's largest IPO to date; IDBI Bank strategic sale process.
- Asset monetisation: the National Monetisation Pipeline (2021), planned about ₹6 lakh crore over 2021-25, covering roads, railways, power, pipelines and ports.
Rationale: raise non-debt capital receipts and reduce the fiscal deficit, improve efficiency and competition, widen public shareholding, and reduce the Government's role in non-strategic sectors.
Criticisms: selling the "family silver" to meet deficits, undervaluation, job losses, loss of strategic control, and persistent shortfalls against targets.
Basis | Disinvestment | Privatisation |
|---|---|---|
Meaning | Sale of part or all of the Government's stake | Transfer of ownership and management control to private hands |
Control | May remain with the Government | Passes to the private sector |
Scope | Includes minority stake sales | The end result of strategic sale |
Key Points
- Disinvestment: sale of the Government's equity in PSUs; methods include OFS, IPO and ETFs.
- DIPAM (2016) manages it; the National Investment Fund (2005).
- Air India (2022) and the LIC IPO (2022) are major recent examples.
- NMP (2021) monetises assets without selling them.
- Strategic sale means privatisation.
MCQs
Q1. Disinvestment in India is now handled by: (a) NITI Aayog (b) DIPAM (c) SEBI (d) RBI Ans: (b).
Q2. Air India was sold to the: (a) Adani Group (b) Tata Group (c) Reliance (d) Jindal Group Ans: (b). In 2022.
Q3. The National Monetisation Pipeline involves: (a) Selling PSUs completely (b) Leasing out or monetising public infrastructure assets while retaining ownership (c) Printing currency (d) Foreign loans Ans: (b).