Current Disinvestment Policy : DIPAM - Indian Economy Notes

When the government takes steps focused on selling or liquidating its shareholding in a public sector enterprise in order to get the government out of the business of production and increase performance in other sectors such as public goods and basic public services, etc is considered to be disinvestment. The current disinvestment policy is handled by the Department of Investment and Public Asset Management (DIPAM), which uses various methods such as Exchange Traded Fund (ETF), Strategic disinvestment and offer for sale as part of disinvestment. This article will discuss the current disinvestment policy which is important for aspirants preparing for the UPSC examination.

What is Disinvestment?

• The shares of various government companies that are held by the Government act as earning assets at the disposal of the Government. These can be sold at any time to generate capital.
• Therefore, when these shares are sold to earn capital the process is known as disinvestment.
• It includes the sale or liquidation of assets or subsidiaries of an organization or government but never the Government’s share should go below 51%.
• The government has revised its disinvestment estimate for the current financial year to ₹78,000 crores, down from ₹1.75 lakh crore envisaged in the budget estimate (BE) on February 1 last year, which is a 55.4% reduction
• The disinvestment target for 2022-23 is Rs 65,000 crore. This is 17% lower than the revised estimate of 2021-22 (Rs 78,000 crore).

Recent Trends in Disinvestment Policy

• The government brought in the New Public Sector Enterprise (“PSE”) Policy for Atmanirbhar Bharat to decrease its presence in the PSEs across all sectors of the economy.
• As of January 24, 2022 government has received Rs 9,330 crore from the disinvestment of CPSEs through the Offer for Sale (OFS) route and the sale of shares through the stock exchange.
• The government has revised its disinvestment estimate for 2021-2022 to ₹78,000 crores.
• The disinvestment target has been decreased from ₹1.75 lakh crore envisaged in the budget estimate this constitutes a 55.4% reduction and has set a target of ₹65,000 crores for 2022-23.
• For disinvestment in 2022-23, the budget estimate has been reduced by 16.6% in comparison to ₹78,000.
• The total proceeds from the disinvestment policy are estimated to be at ₹12,029.9 crore, which includes ₹2,700 crore receipt from Air India privatization and a balance of ₹9,330 crores through sale of minority stakes in CPSEs.
• Major disinvestments include disinvestments planned for the IPO of LIC, Bharat Petroleum Corporation Ltd (BPCL), RINL and Pawan Hans.
• According to an estimate, a 10% IPO of LIC shares may raise over ₹1 lakh crore.
• The current disinvestment is carried out in a variety of ways by the government. Exchange-traded funds (ETFs), offer-for-sale (OFS), strategic disinvestment, buybacks, and initial public offerings (IPOs) have been the most common forms of disinvestment in the last six years.

Strategic Disinvestments

• Strategic disinvestment involves the selling of a significant percentage of the government's stake in a CPSE (up to 50% or more) as well as managerial control transfer.
• In the last six financial years, any transaction in which the government sold more than 51 percent of its investment in a CPSE while also transferring management control resulted in another CPSE acquiring the government's stake.
• The sale of HPCL to the state-owned Oil and Natural Gas Corporation Limited raised Rs 36,915 crore for the government in 2017-18. In the same way, the government collected Rs 14,500 crore in 2018-19 from the sale of REC Limited to Power Finance Corporation Limited, another state-owned power company.
• For a long time, several strategic disinvestment transactions have been in the works. The sale of Bharat Petroleum Corporation Limited, for example, was approved in November 2019 but has yet to be completed.

Note: This figure includes Air India. IDBI Bank, which was approved for strategic disinvestment in May 2021, is not included.

ETF and OFS

• An exchange-traded fund (ETF) is a collection of stocks. CPSE-ETF and Bharat 22 ETF are the government's two principal ETFs. The government increased the maximum disinvestment receipts from ETFs between 2015-16 and 2020-21.
• The government's stake in listed CPSEs is sold in the stock market as part of the OFS. Even yet, CPSEs have purchased major stakes in other government-owned businesses. In 2015, for example, the Life Insurance Corporation of India (LIC) purchased 45 percent of a 10% OFS in Coal India Limited. In March 2013, LIC purchased 71 percent of a 5.82 percent share in Steel Authority of India Limited.

New Public Sector Enterprises Policy

• The central government has categorized most sectors into strategic and non-strategic sectors under the new PSE policy.
• The government will maintain a bare minimum presence in strategic areas. Privatization, merger, subsidiarisation, or closure of the remaining entities will be considered. (i) Atomic energy, space, and defense, (ii) transportation and telecommunication, (iii) power, petroleum, coal, and other minerals, and (iv) banking, insurance, and financial services are among the sectors classified as strategic.
• In non-strategic sectors, CPSEs will be privatized or closed.
• Certain industries have been excluded from the system, including development finance/refinancing institutions, large port trusts, and CPSEs that assist vulnerable communities.

Conclusion

Disinvestment helps to fulfill various constraints of the government such as reducing the financial burden of the sick, loss-making PSUs on the Government, helping to improve public finances, introducing competition and market discipline, aid to fund growth, social sector welfare, facilitating a wider share of ownership and to depoliticize non-essential services, etc