Page 206 - DECO303_INDIAN_ECONOMY_ENGLISH

Unit 12: Privatisation and Economic Reforms

12.2.3 Policy of Disinvestment Notes

You must keep in mind the following policies of Disinvestment:

Past Disinvestment Policy

The policy of disinvestment has largely evolved through the policy statements of former Finance
Ministers in their Budget Speeches. The policy as evolved is enumerated below:
1. In the Interim Budget of 1991-92, it was declared that the Government would disinvest up
to 20% of its equity in some PSEs in favour of mutual funds and financial and institutional
investors in public sector.
2. In the Budget speech of 1992-93, the cap of 20% was reinstated and the list of eligible
investors was extended to involve FIIs, employees and OCBs.

3. In April 1993, the Rangarajan Committee suggested disinvesting up to 49% of PSEs equity
for industries explicitly reserved for the public sector and over 74% in other industries.
However, the then Government did not take any decision on the Committee’s
recommendations.
4. In 1996, as per the Common Minimum Programme (CMP), the Budget speech of 1996-97
declared the establishing of Disinvestment Commission for 3 years (for more details
about the Disinvestment Commission,). CMP also emphasised adding more transparency
to the disinvestment process and evaluate the non-core areas of public sector.
5. In the Budget speech of 1998-99, it was declared that the Government shareholding in
CPSEs should be brought down to 26% on case-to-case basis, except strategic CPSEs where
the Government would retain majority shareholding. The interest of workers was to be
safeguarded in all the cases. For this objective, on 16 March 1999, the Government
categorised the PSEs into Strategic and Non-Strategic areas. It was determined that Strategic
PSEs would be those in areas of:

(a) Arms and ammunition and allied items of defence equipment, defence aircraft and
warships.
(b) 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).
(c) Railway transport.
You must understand that all other PSEs were to be considered non-strategic.
1. In the Budget speech of 1999-2000, it was declared that the Government would continue to
strengthen the Strategic units and “privatising” the Non-Strategic ones through gradual
disinvestment or strategic sale and develop viable rehabilitation strategies for weak units.

2. The 2000-01 Budget speech emphasised on restructuring and revitalisation of viable CPSEs,
closure of PSEs which cannot be revived; bringing down Government shareholdings in
Non-Strategic CPSEs to 26% or lower, if necessary, and protection of the interest of workers.
The receipts from disinvestment would be used for the social sector, rearrangement of
CPSEs and for retirement of public debt.
3. In the suo moto statement of 2002, specific objective was given to the disinvestment Policy
– creation of new assets, modernisation and upgradation of PSEs, generation of employment
and retiring of public debt.

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