Disinvestment is a philosophy of new economic policy of India. It is complete denationalization of assets. India adopted Disinvestment of government’s equity in PSUs and the opening up of closed areas to private participation. In recent years, the issue of privatization have been brought to the forefront due to the large scale fiscal deficits that the government has been facing.
The New Industrial Policy announced on 24th July, 1991, was an attempt to meet conditionalities imposed by IMF and World Bank in exchange of loan. The new economic policy was increasing the role and importance of the private sector in Industrial economy of the country and various measures were announced to achieve this purpose.
In August 1996, a five member Disinvestment was set up under the chairmanship of G V Ramakrishna former planning commission member and former chairman of SEBI with an aim to introduce mass ownership and promoting worker’s shareholding. The process was expected to eventually transform the existing state owned enterprises into public owned companies. Before measure the full fledged Disinvestment strategy; there are few terms of reference for the commission as to draw long term investment programme within 5 to 10 years for PSU referred it. To determine the extent Disinvestment in each PSU;prioritize PSUs referred to it by the core group terms if the overall disinvestment programme.
To supervise the overall sale process and take decisions on the instrument as well as pricing. To select the financial advisors for the specified PSU to facilitate the investment process. Ensure the appropriate measures are taken during the investment process to Protect the interest of the affected employees.
Objectives of Disinvestment
The following objectives were stated in July 1991 are :-
• To improve overall economic efficiency
• To reduce fiscal deficit
• To diversify the ownership of PSU for enhancing efficiency of individual enterprises.
• To reduce the financial burden on the government.
• To improve public finance.
• To encourage wider share of ownership.
• To introduce, completion and market discipline.
• To raise funds for technological upgradation modernization and expansion of public sector enterprises
Rangarajan Committee on PSU Disinvestment, Krishnamurthy reconstituted in November 1992 with C Rangarajan as its chairman. To devise criteria for selection of public sector units for disinvestment during1992 – 1993. Advise on limits on the percentage of equity to be sold respect of each unit. To indicate the modus operandi of investment. Lay down criteria for valuation of equity shares of PSUs and make other recommendations related to disinvestment.
Methods of Disinvestment
The policy on Disinvestment has evolved considerably from the time of industrial policy of 24th July, 1991 stated that in order to raise resources and encourage wider public participation, a part of the government’s shareholding in the public sector would be offered to mutual fund, financial institutions, general public and workers.
When minority shareholding of the central government in 30 individual CPSEs was sold to select financial institutions. On recommendation of Rangarajan Committee in 1993 scope for investment continue to increase and evolve over the time To meet the targets traditional modes like IPO (Initial Public Offer) and FPO (Follow on Public Offer).
The government revived schemes like strategic sakes, made significant. Refinements in order to maintain sale through auction methods and over the time introduced new ideas like ETF for CPSEs to broader base choice alternatives available for Disinvestment.
Methods that adopted in 2017 – 2018 for investment
• Offer for Sale (OFS) the kind of sales shares by promoters through stock exchange mechanism adopting auction routes.
• Initial Public Offering are listed in CPSE or sales by government out of shareholding.
• Strategic Sale are substantial portion of the Government shareholding of a Central Public Sector Enterprise (CPSE) along with transfer of management control. Buy their own share by cash rich PSUs. Institutional Placement Program (IPP) only Institutions can participate.
• CPSE Exchange Traded Fund Disinvestment through ETF routes allows sale of government of India stake in various CPSEs across diverse sectors through a single product offering.