2. Strategic Disinvestment

In order to make disinvestment a process by which efficiency of the PSUs could be enhanced and the government could de-burden itself of the activities in which the private sector has developed better efficiency (so that the government could concentrate on the areas which have no attraction for the private sector such as social sector support for the poor masses), the government initiated the process of strategic disinvestment. The government classifying the PSUs into ‘strategic’ and ‘non strategic’ announced in March 1999 that it will generally reduce its stake (share holding) in the ‘non- strategic’ public sector enterprises (PSEs) to 26 per cent or below if necessary and in the ‘strategic’ PSEs (i.e., arms and ammunition; atomic energy and related activities; and railways) it will retain its majority holding.45 There was a major shift in the disinvestment policy from selling small lots of share in the profit-making PSUs (i.e., token disinvestment) to the strategic sale with change in management control both in profit and loss- making enterprises. The essence of the strategic disinvestment was—

(i) The minimum shares to be divested will be 51 per cent, and

(ii) the wholesale sale of shares will be done to a ‘strategic partner’ having international class experience and expertise in the sector.

This form of disinvestment commenced with the Modern Food Industries Ltd. (MFIL). The second PSUs was the BALCO which invited every kind of criticism from the opposition political parties, the Government of Chattisgarh and experts, alike. The other PSUs were CMC Ltd, HTL, IBPL, VSNL,

ITDC (13 hotels), Hotel Corporation of India Ltd. (3 hotels), Paradeep Phosphate Ltd (PPL), HZL, IPCL, MUL and Lagan Jute Manufacturing Company Ltd. (LJMC)—a total number of 13 public sector enterprises, were part of the ‘strategic sale’ or ‘strategic disinvestment’ of the PSEs.46 The new government at the Centre did put this policy of strategic disinvestment on the hold practically and came up with a new policy in place.

Current Disinvestment Policy

India’s disinvestment policy®47 has evolved over time since it commenced in 1991. It has two major features— ‘ideology’ behind the policy and the ‘policy’ itself. The ideology behind the policy is:

(i) Public ownership of PSUs to be promoted as they are wealth of nation;

(ii) Government to hold minimum 51 per cent shares in case of ‘minority stake sale’; and

(iii) Upto 50 per cent or more shares might be sold off under ‘strategic disinvestment’.

The current policy of disinvestment followed by the government is as given below:

(i) Minority stake sale (the policy of November 2009 continues):

• Listed PSUs to be taken first to comply to minimum 25 per cent norm;

• New PSUs to be listed which have earned net profit in three preceding consecutive years;

• ‘Follow-on’ public offers on case by case basis once capital investment needed; and

• DIPAM (Department of Investment and Public Asset Management) to identify PSUs and suggest disinvestment in consultation with respective ministries.

(ii) Strategic Disinvestment i.e., selling 50 per cent or more shares of the PSUs (announced in February 2016):

• To be done through consultation among Ministries/Departments and NITI Aayog;

• NITI Aayog to identify PSUs and advice on its different aspects; and

• CGD (Core Group of Secretaries on Disinvestment) to consider the recommendations of NITI Aayog to facilitate a decision by the CCEA (Cabinet Committee on Economic Affairs) and to supervise/monitor the implementation process.

The disinvestment policy is today seen as a part of the Government’s comprehensive management of its investment in the PSUs. Under this, the Government considers its investment in PSUs as an important asset for accelerating economic growth and is committed to their efficient use to achieve optimum return through the following measures:

• Leveraging of assets, capital and financial restructuring;

• Raising fresh investments by improving investors’ confidence; and

• Efficient management through rationalization of decision making process.