The document discusses various aspects of disinvestment in India such as: 1) Disinvestment refers to the sale of government assets or subsidiaries and is done to raise resources, introduce competition, and reduce the financial burden on the government. 2) India embarked on its disinvestment program in the 1990s and has used various methods like minority stake sales, strategic sales, and privatization to meet fiscal targets. 3) Challenges include political opposition, difficulty in valuing PSU assets, and criticism of job losses from privatization. The program has helped improve corporate governance but also reduced a source of government revenue from dividends.

2.  Disinvestment can also be defined as the action
of an organisation (or government) selling or
liquidating an asset or subsidiary. It is also
referred to as ‘divestment’ or ‘divestiture.’
 In most contexts, disinvestment typically refers
to sale from the government, partly or fully, of a
government-owned enterprise.
 A company or a government organisation will
typically disinvest an asset either as a strategic
move for the company, or for raising resources to
meet general/specific needs.

3.  The following main objectives of
disinvestment were outlined:
I. To reduce the financial burden on the
Government
II. To improve public finances
III. To introduce, competition and market
discipline
IV. To fund growth
V. To encourage wider share of ownership
VI. To depoliticise non-essential services

4.  Improves corporate governance
 Develops and deepens the capital market
through spread of equity culture.
 Enhanced corporate governance with the
induction of independent Directors.
 Development and deepening of capital
market and spread of equity culture.
 Infrastructure, defense, education, healthcar
e, and law and order development.

5.  This also creates fiscal space for relocation
of resources locked with CPSEs.
 Resources locked in sectors developed
enough to raise money from the market are
channelized into areas of economy that are
less likely to access resources for the market
because of their stage of economic
development.

6.  Letting go of these assets is best in the long
term interest of the tax payers as the current
yield on these investments in abysmally low.
 Unlocking of shareholder value
 Employees:
 Pay rises, as has been seen in past divestments.
 Greater opportunities and avenues for career
growth- further employment generation.

7. i. Minority Disinvestment
ii. Majority Disinvestment
iii. Complete Privatisation

8.  A minority disinvestment is one such that, at the end
of it, the government retains a majority stake in the
company, typically greater than 51%, thus ensuring
management control.
 Historically, minority stakes have been either
auctioned off to institutions (financial) or offloaded
to the public by way of an Offer for Sale. The present
government has made a policy statement that all
disinvestments would only be minority disinvestments
via Public Offers.
 Examples of minority sales via auctioning to
institutions go back into the early and mid 90s. Some
of them were Andrew Yule & Co. Ltd., CMC Ltd. etc.
Examples of minority sales via Offer for Sale include
recent issues of Power Grid Corp. of India Ltd., Rural
Electrification Corp. Ltd., NTPC Ltd., NHPC Ltd. etc.

9.  A majority disinvestment is one in which the
government, post disinvestment, retains a
minority stake in the company i.e. it sells off a
majority stake.
 Historically, majority disinvestments have been
typically made to strategic partners. These
partners could be other CPSEs themselves, a few
examples being BRPL to IOC, MRL to IOC, and
KRL to BPCL.
 Again, like in the case of minority
disinvestment, the stake can also be offloaded
by way of an Offer for Sale, separately or in
conjunction with a sale to a strategic partner.

10.  Complete privatisation is a form of majority
disinvestment wherein 100% control of the company
is passed on to a buyer. Examples of this include 18
hotel properties of ITDC and 3 hotel properties of
HCI.
 Disinvestment and Privatisation are often loosely
used interchangeably. There is, however, a vital
difference between the two. Disinvestment may or
may not result in Privatisation. When the Government
retains 26% of the shares carrying voting powers
while selling the remaining to a strategic buyer, it
would have disinvested, but would not have
‘privatised’, because with 26%, it can still stall vital
decisions for which generally a special resolution
(three-fourths majority) is required.

11.  Privatization implies a change in
ownership, resulting in a change in management.
The privatization of public sector enterprises will
occur only when govt. sells more than 51% of its
ownership to private entrepreneurs.
 Disinvestment on the other hand, has a much
wider connotation as it could either involve
dilution of govt. stake to a level that result in a
transfer of management or could also be limited
to such a level as would permit govt. to retain
control over the organization.
 Disinvestment beyond 50% involves transfer of
management, where as disinvestment below 50%
would result in the govt. continuing to have a
major say in the undertaking .

12.  The decision regarding disinvestment or
liquidation viewed in the light of following
criteria:
a) Whether the objectives of the company are
achieved. b) Whether there is decrease in
number of beneficiaries .
c) Whether serving the national interest will be
affected because of disinvestment
d) Whether private sector can efficiently
operate and manage the undertaking.
e) Whether the original rate of return targeted
could not be possible to achieve.

13.  In order to achieve the various objectives
and goals of disinvestment many methods
have been formulated and implemented.
These includes:
(1) Public Offer: offering shares of public
sector enterprises at a fixed price through a
general prospectus, the offer is made to the
general public through the medium of
recognized market intermediaries.
(2) Cross Holding: In the case of cross
holding, the govt. would simply sell part of its
share of one PSU to one or more PSU’s.

14. (3) Golden Share: in this model, the govt. retains a
26 percent share in the PSU. This 26 percent share
will continue to give the govt. the status of
majority share holder.
(4) Warehousing: Under this model, the govt.
owned financial institutions were expected to buy
the govt.’s share in select PSU’s and holding them
until third buyer emerged.
(5) Strategic Sale: Under this model, govt. sells a
major portion (51% and above) of its stake to the
strategic buyer and also gives over the
management control.
(6) FPO: An issuing of shares to investors by a
public company that is already listed on an
exchange. Retail participation is mostly high.

15.  The size of the offer shall be atleast 1% of the paid-
up capital of the company, subject to a minimum of
Rs 25 crores.
 Seller(s) may declare a floor price in the
announcement/ notice.
 The duration of the offer for sale shall not exceed
one trading day.
 A separate window for the purpose of offer for sale of
shares shall be created by stock exchanges.
 Stock Exchange shall collect 100% of the order value
in cash, at the order level for every buy order/ bid
 Criticism because retail investors do not have any
quota as in IPO/FPO and not easy to bid also.
 Any of the top 100 listed companies by market
capitalisation

16.  Issuance of fresh shares and offer for sale of
shares in a listed issuer for the purpose of
achieving minimum public shareholding
 The minimum number of allottees for each offer
of eligible securities made under institutional
placement programme shall not be less than ten
 No partly paid-up securities shall be offered.
 The issue shall be kept open for a minimum of
one day or maximum of two days.
 Must not result in increase in public shareholding
by more than ten per cent.
 Allottee cannot sell the allocation /allotment
before the period of one year.

17.  In Private Sector, the decision making process is
quick and decisions are linked with the
competitive market changes.
 The disinvestment process would bring in better
corporate governance, exposure to
competitive, corporate
responsibility, improvement in work environment
etc.
 The market participation in capital of PSUs
through stock exchanges would enable the
market to discover the latent worth of PSUs.
 The Loss making PSUs can be successfully revived
by asking the strategic partner to infuse fresh
capital and exercising excellent management
control over sick PSUs

18.  Sellingof profit-making and dividend paying
PSU would result in loss of regular source of
income to the government.
 There would be chances of ‘asset stripping’
by the strategic partner. Most of the PSUs
have valuable assets in the shape of plant
and machinery, land and buildings etc.
 The Government’s Policy or disinvestment
includes the disposal of both profit
making, as well potentially viable PSUs.

20.  (i) Citizens have every right to own part of
the shares of Central Public Sector
Enterprises.
 (ii) Central Public Sector Enterprises are the
wealth of the Nation and this wealth should
rest in the hands of the people.
 (iii) While pursuing disinvestment, the
majority shareholding of at least 51% and
management control of the Central Public
Sector Enterprises to be retained by the
Government.

21.  Government's stakes in CPSEs would squeeze
this important source of revenue for the
Government.
 Thus essentially implying that the real
beneficiaries would not be the ordinary retail
investor but institutional investors.
 in the case of disinvestment, future streams
of income from dividends are forgone against
a one-time receipt from the sale of stakes
 Employees of PSUs would lose jobs

22.  Profit making PSUs should not be disinvested as they are
performing well in any which way.
A good example against this criticism would be
BALCO which was a profit making company that
earned the Government an average dividend (over
eight years) of Rs. 5.69 cr every year on the equity
sold. The Government post-disinvestment, however
started getting Rs. 82.65 crore every year.
 Complete Privatisation may result in public monopolies
becoming private monopolies, which would then exploit
their position to increase costs of various services and
earn higher profits.

23. World and India

24.  The 1980s
 Arguments by economist
 Steps taken by USSR and China in 1980s
 The World Bank report of 1997

25.  Aggressive disinvestment spree in the 1980s
by the Margaret Thatcher government.
 Public offer were one of the frequently used
techniques in the UK.
 Consequences from the exercise carried out
in the UK.
 Privatization did not lead to greater
competition in all cases.

26.  Germany privatized 13,500 companies by selling
off its stake in a span of two years.
 Other countries like
Taiwan, Hungary, Thailand, Philippines, Korea, Tu
rkey, Poland, West Asia. Zambia, Vietnam and
even China similarly marched ahead with the
disinvestment program.
 In the UK and much of South America, Eastern
Europe and Russia, the idea behind privatization
was not merely to raise money, but was also
driven by ideology – privatize swiftly at all costs
to increase the firm's efficiency and profitability
and benefit the economy as a whole.

27.  Period from 1991-92 - 2000-01
i. The change process in India began in the year 1991-
92, with 31 selected PSUs disinvested for Rs.3,038 crore. In
August 1996, the Disinvestment Commission, chaired by G
V Ramakrishna was set up to advice, supervise, monitor
and publicize gradual disinvestment of Indian PSUs
ii. The Department of Disinvestment was set up as a separate
department in December, 1999 and was later renamed as
Ministry of Disinvestment from September, 2001. From
May, 2004, the Department of Disinvestment became one
of the Departments under the Ministry of Finance.
iii. Against an aggregate target of Rs. 54,300 crore to be
raised from PSU disinvestment from 1991-92 to 2000-
01, the Government managed to raise just Rs. 20,078.62
crore

28.  This was the period when disinvestment
happened primarily by way of sale of minority
stakes of the PSUs through domestic or
international issue of shares in small tranches.
The value realized through the sale of
shares, even in blue chip companies like
IOC, BPCL, HPCL, GAIL & VSNL, however,was low
since the control still lay with the government.
 Most of these offers of minority stakes during
this period were picked up by the domestic
financial institutions. Unit Trust of India was one
such major institution.

29.  This was the period when maximum number of
disinvestments took place. These took the shape of either
strategic sales (involving an effective transfer of control
and management to a private entity) or an offer for sale to
the public, with the government still retaining control of
the management. Some of the companies which witnessed
a strategic sale included:
I. BHARAT ALUMINIUM CO.LTD.
II. CMC LTD.
III. HINDUSTAN ZINC LTD.
IV. HOTEL CORP .OF INDIA LTD. HTL LTD.
V. IBP CO.LTD.
VI. INDIA TOURISM DEVELOPMENT CORP .LTD.(18 HOTEL
PROPERTIES)
During this period, against an aggregate target of Rs. 38,500 crore to be
raised from PSU disinvestment, the Government managed to raise Rs.
21,163.68 crore.

30.  The issue of PSU disinvestment remained a
contentious issue through this period. As a
result, the disinvestment agenda stagnated
during this period. In the 5 years from 2003-
04 to 2008-09, the total receipts from
disinvestments were only Rs. 8515.93 crore.

31.  A stable government and improved stock market
conditions initially led to a renewed thrust on
disinvestments. The Government started the
process by selling minority stakes in listed and
unlisted (profit-making) PSUs. This period saw
disinvestments in companies such as NHPC Ltd.,
Oil India Ltd., NTPC Ltd., REC, NMDC, SJVN, EIL,
CIL, MOIL, etc. through public offers.
 However, from 2011 onwards, disinvestment
activity has slowed down considerably. As against
a target of Rs.40,000 crore for 2011-12, the
Government was able to raise only Rs.14,000
crore.

33.  VSNL was the first CPSE to be divested by
way of a Public Offer in 1999-00
 ONGC Public Offer in 2003-04 has been the
largest CPSE FPO, raising Rs. 10,542 crore
 Coal India Public Offer in 2010-11 has been
the largest CPSE IPO, raising Rs. 15,199 crore
 The maximum number of applications
received in a PSU IPO/FPO since 2003-04 was
in CIL (15.96 lakhs)

35.  Policy intervention :
 There is an urgent need to take immediate steps
to minimize the resource shortfall and keep
expenditures within control. Current reform
scenario.
I. Tax measures
II. Disinvestment receipts
III. Subsidies
I. Petroleum subsidy
II. Fertilizer subsidy
III. Food subsidy
IV. Plan expenditure
V. Deficit

36.  Total Disinvestments
 Current Financial Year, till date: Rs. 21,402 crore
 Cumulative, till date: Rs. 131,511 crore
 10 per cent stake sale in OIL fetched Rs 3,141 crore.
 NTPC stake of 9.5% garnered Rs 11,496 crore.
 Stake sale of Nalco, MMTC, SAIL and Rashtriya
Chemicals and Fertilisers (RCF) is also scheduled for
current fiscal.

37.  So far this fiscal, the government has raised
Rs 21,500 crore as against the target of Rs
30,000 crore
 Besides, 10 per cent stake sale in OIL fetched
Rs 3,141 crore and 9.5 per cent in NTPC
garnered Rs 11,496 crore.
 Stake sale of Nalco, MMTC, SAIL and
Rashtriya Chemicals and Fertilisers (RCF) is
also scheduled for current fiscal.

39.  Following the target of Rs. 30,000 to be raised through disinvestment in this
fiscal, the government has sold 9.5% share of NTPC through Offer for Sale
(OFS) through which the government mobilized about Rs 11,400 crore (about
$2.1 billion).
1. So far in the fiscal, the government has mobilized about Rs 20,000 crore
though divestments of its stake in these companies, which is about 67% of its
target.
2. This would also help the government remain closer to its fiscal deficit target of
5.3% of GDP. The recent change in rules for OFS, of allowing institutional
investors to bid for stocks at no margin, helped the NPTC issue sail through.
3. Earlier, institutions had to put in full margin money while bidding in an OFS.
Under the new rules, an institutional investor which is bidding in OFS without
any upfront margin, cannot revise its bid price downward, while those bidding
with full margin money can do so.

40. The Cabinet Committee on Economic Affairs has approved the Follow On Public
Offer (FPO) of Power Finance Corporation (PFC) consisting of:
1. 17,21,65,005 equity shares of Rs.10 each constituting fresh issue of 15% of
pre-issue existing paid up capital;
2. In addition to above, 5,73,88,335 equity shares of Rs.10 each representing
disinvestment by Government of India of 5% of pre-issue paid up capital of
PFC;
3. Reservation of equity shares for PFC employees subject to the limit
prescribed for retail investors by SEBI, which will not exceed 0.12% of the
issue size.
4. Discount of 5% of offer price to the retail individual investors and eligible
employees.
5. Fresh issue of equity shares would enable PFC:
i) To meet the eligibility requirement of maintaining a CRAR (Capital to Risk
Assets Ratio) of 15% for IFC (Industrial Finance Company) status and
ii) To enhance equity base to enable it to meet the growing future
investment needs of the power sector.

41. 1. The government's failure to sell all of the shares in its $2.5 billion
auction of a 5% stake in Oil and Natural Gas Corp (ONGC) is an
embarrassing setback in its effort to revive stock sales and trim a
yawning fiscal deficit.
2. ONGC shares fell more than 2% on Friday, a day after a glitch-
ridden auction saw just 98.3% of the shares taken up. Media
reports said state-run Life Insurance Corp of India (LIC) had
bought a huge chunk of the shares.
3. New Delhi hoped to follow up the ONGC sale by unloading shares
in companies including Bharat Heavy Electricals Ltd (BHEL), Steel
Authority of India Ltd (SAIL) and Oil India but will need to rethink

42. 1. It will also need to address the concerns of overseas
institutional investors about regulatory risk associated
with investing in state-run companies.
2. A lack of clarity on how much of India's hefty oil
subsidies would be borne by ONGC was a key deterrent
to more interest from foreign institutions.
3. The floor price for the auction was set at Rs 290 late
on Tuesday, a 2.3% premium to the day's closing
price, prompting widespread criticism that it should
have been priced at a discount.
Shares of ONGC, India's second most valuable
company, were trading at Rs 281.95 on Friday.

43. 1. Government had approved a 10 percent stake sale in the country's largest iron-ore
miner NMDC that could fetch the exchequer over Rs 7,000 crore.The
disinvestment, like in the case of Hindustan Copper, will be through offer-for-sale
(OFS) route, popularly known as auction method.
2. The government will offer about 39 crore equity in NMDC of face value of Rs 1 each to
investors. At present, the government holds 90-percent stake in the (NMDC). As of
March 31, 2012, the paid-up equity capital of NMDC was Rs 396.47 crore.
3. NMDC has reported a nearly 15 percent decline in net profit at Rs 1,678.62 crore for
the quarter ended September 30, 2012, largely due to lower production and fall in
sales. Shares of NMDC closed at Rs 166.50 apiece, down 1.89 percent on the BSE on
Friday.
4. Kick-starting the disinvestment process of this year, the government on Friday sold
5.58-percent stake in Hindustan Copper for about Rs 808 crore at an average price of
Rs 156.56 apiece, with bulk of the bids coming from LIC and PSU banks.

44.  On 27 January 2005, the Government had
decided to constitute a 'National Investment
Fund' (NIF) into which the realization from
sale of minority shareholding of the
Government in profitable CPSEs would be
channelised. The Fund would be maintained
outside the Consolidated Fund of India.

45.  The proceeds from disinvestment of CPSEs
will be channelized into the National
Investment Fund which is to be maintained
outside the Consolidated Fund of India.
 The corpus of the National Investment Fund
will be of a permanent nature.
 The Fund will be professionally managed to
provide sustainable returns to the
Government, without depleting the corpus

46.  75%of the annual income of the Fund will be
used to finance selected social sector
schemes, which promote education, health
and employment. The residual 25% of the
annual income of the Fund will be used to
meet the capital investment requirements

47.  (a) 75% to finance selected social sector
schemes, which promote education, health
and employment.
 (b) 25% to meet the capital investment
requirements of profitable and revivable
CPSEs that yield adequate returns, in order
to enlarge their capital base to finance
expansion/diversification.

48.  Accordingly, from April 2009, the disinvestment
proceeds are being routed through NIF to be
used in full for funding capital expenditure
under the social sector programmes of the
Government, namely:
 (i) Mahatma Gandhi National Rural Employment
Guarantee Scheme
 (ii) Indira Awas Yojana
 (iii) Rajiv Gandhi Gramin Vidyutikaran Yojana
 (iv) Jawaharlal Nehru National Urban Renewal
Mission
 (v) Accelerated Irrigation Benefits Programme
 (vi) Accelerated Power Development Reform
Programme

49.  UTI ASSET MANAGEMENT CO.LTD.
 SBI FUNDS MANAGEMENT CO.PVT.LTD.
 LIC
MUTUAL FUND ASSET MANAGEMENT CO.
LTD.

50.  Unfavorable market conditions
 Offers made by the government were not
attractive for private sector investors
 Lot of opposition on the valuation process
 No clear-cut policy on disinvestment
 Strong opposition from employee and trade
unions
 Lack of transparency in the process
 Lack of political will

51. ?