What is Disinvestment in India? Disinvestment Policy 2009


  1. Status on the eve of independence
  2. Rationale behind PSUs dominant Role
  3. Problems faced by PSU’s – 1991
  4. Disinvestment In  India :  Meaning
  5. Purpose of disinvestment
  6. Policy on disinvestment
  7. Budget 2016 -17 : Investment based approach
  8. DIPAM
  9. Arguments for Disinvestments 
  10. Arguments Against Disinvestments
  11. Targets and Actuals
  12. Role of PSUs presently
  13. Way forward
  14. Conclusion

On the eve of independence

  • Socialistic Pattern of Economy
  • State led capitalism
  • Mixed Economy (Public + Private)
  • Centralized planning 🡪 Imperative planning
  • Self Reliance 
  • 2nd Five Year Plan 🡪 Mahalanobis Model 🡪 Heavy Industries 🡪 PSU Dominance.

The rationale behind PSU’s dominant Role

  • Tackling regional imbalances
  • Jobs creation
  • Import substitution 
  • Coordinated decisions
  • Basic Industries like steel, power etc.
  • Market for Big Industries through each other.
  • Budgetary support 🡪Big enough to face risks.
  • Weak private sector

Problems faced by PSU’s-1991

  • Financial losses – burden on fiscal deficit.
  • Issue of White Elephant – poor project planning & time & cost overruns.
  • Generalist Bureaucratic control 🡪 Low efficiency/accoutability 
  • Excessive political interference.
  • Surplus man power – cost of man power is more but Efficiency is less.
  • Low price recovery due to social Burden.
  • Over protection from competition – so started producing poor quality of goods.

“The difficulty with PSU 🡪 a PSU is expected to perform on similar lines as private sector units yet is deprived of management autonomy 🡪 

Disinvestment:  Meaning

  • Government’s action for selling or liquidating its shareholding in a PSU in order to get the government out of the business of production and increase its presence and performance in the provision of public goods and basic public services such as infrastructure, education, health etc.

Purposes of Disinvestment Policy

  1. To infuse the professional management vs. Bureaucratic system.
  2. Wider ownership comprising of Govt, Public & private sector 🡪 Accountability.
  3. De-politicisation of essential services.
  4. Enhance the financial discipline & reduce subsidy burden: reduces fiscal burden.
  5. More competition and Better Quality of goods and services.
  1. More autonomy to the PSU management through Navaratna, Maharatna, Miniratna status.
    • Autonomy to invest till particular levels as per their status 
    • Their workforces not apply rules of Govt. {economic logic vs Public Service Logic}.

viii. To enable Govt. to focus on social objective like education, health, rather than business values.


    • 20% disinvest in select PSUs
    • Shares sold to Domestic FIs and MFIs
    • Later expanded to FIIs, Banks, PSU Employees
1998-2000: PSUs classified into 2 parts
    • Strategic Sector– industries which are strategically important like Defence, Railways, and Atomic etc. 🡪 No Disinvestment 
    • Non strategic Sector: others -> Disinvestment in phased manner

PSUs like Maruti, VSNL etc were privatized.

2004: UPA Common Minimum   Programme 
    • Revive Sick PSUs
    • Don’t touch profitable PSUs
    • Commercial Autonomy
2005: National Investment Fund

75% proceeds social sector; 25% PSUs capitalization.

Disinvestment policy 2009: PRINCIPLES

  1. Public enterprises are the assets of public 🡪 So, public’s ownership should be increased.
  2. Reserve 20% of shares in OFS (offer for sale) for retail investors (for General Public/ individuals) 🡪 Broad base ownership.
  3. Retaining majority shareholding of 51% & management control in strategically imp. Sectors.
  4. Strategic disinvestment of identified PSU’s with more than 50% equity sale & simultaneous transfer of management control.

Suggested: also read Public-Private Partnership In India

Budget 2016 -17: Investment based approach

  • Govt moved from Disinvestment based approach to investment-based approach. 🡪 to enhance efficiency of PSU 🡪 Get more profit. 
  • Transfer of Dept of Investment to Dept of Investment & public Asset Management (DIPAM).

Investment based approach

  • The current government is pursuing disinvestment, not to vacate the public sector, but to enhance its efficiency. 
  • The new disinvestment mantra is to.
  1. i) Minimize interference.
  2. ii) Allow public sector undertakings to function along commercial principles.

iii) Grant managerial autonomy in decision-making, such as in appointments.

Department of Investment and Public Asset Management or ‘DIPAM’

  • Aim of DIPAM: Efficient management of centre’s investments in equity including its disinvestment in central public sector undertakings (CPSU).
  • Mandate: 
  1. i) Advice the government in the matters of financial restructuring of CPSUs.
  2. ii) Attracting investment through capital markets.

iii) Addressing issues such as capital restructuring, dividend, bonus shares, etc.

Investment Based Approach Recent Initiatives

  • Time bound listing of 14 CPSU’s – Transparency inc. – Accountability  (pipeline of initial public offers (IPOs) of state-owned enterprises in place).
  • To promote the retail investors through index based ETF like Bharat 22.

Investment Based Approach

  • Proposed Alternative Set up.
    • to speed up strategic sales.
    • comprises select ministers empowered to decide on the timing, price and amount of shares of a state-run company to be put on the block for outright sale.

Targets and Actuals

  • FY 2017-18:   

  Target 72,500 Cr   Actual Rs 100000 Cr

  • FY 2018-19:   

Target 80,000 Cr   Actual Rs 85,000 Cr

FY 2019 – 20: 

  • Rail Vikas Nigam IPO Started.
  • Government has targeted to mobilise Rs 1.05 lakh crore from disinvestment proceeds. So far, it has been able to raise Rs 0.18 lakh crore which is 17.2% of 2019-20 BE.

Budget 2020-21-

  • Government to sell a part of its holding in LIC by way of Initial Public Offer(IPO).
  • Pegged disinvestment target for 2020-21 at Rs 1.20 lakh crore, nearly double of Rs 65,000 crore it expects to raise in the current financial year.
  • Plan for IDBI stake sale.
  • The Centre is expected to divest stakes in Air India, Bharat Petroleum Corp. Ltd (BPCL), Container Corp. of India Ltd (Concor) and Shipping Corp. of India Ltd (SCI) soon.
  • The government plans to privatize Air India by selling its 100% ownership in the airline.
  • Consolidating central public sector entities in the power sector by selling its entire stake of 74.23% in Tehri Hydro Development Corp. and its 100% stake in North Eastern Electric Power Corp. Ltd to NTPC Ltd.

Arguments For Disinvest –

  1. At time of 1947 we did not have any investment Base – 
    • The initial rational for growth of PSU’s is no longer valid.
    • We already have strong industrial Base, wider market & Good private sector in space.
  2. Poor performance of PSU’s in productive efficiency paramete.r

In FY18, 71 out of 257 operational central public sector entities were in the red, notching up combined losses of Rs 31,260 crore

State-run BSNL and MTNL had a combined loss of nearly Rs 11,000 crore. 

Air India contributed Rs 5,338 crore to the loss.

  1. It is just change in portfolio of assets by the owner 🡪 means, selling the good investment to buy more promising Assets (Social security assets).
  2. Current principle is that investment should be change in favour of high social returns.
  3. Public Management may never be able to revive some of sectors and their financial operational health.  
  4. We should be guided by economic logic rather than guided by nostalgia.

The argument against Disinvestments-

  1. Initially when we were in difficult Situation PSUs was rescued us. 
    • By transferring ownership, whatever we built by public taxes, profit will be enjoyed by the private sector at the cost of public money.
    • PSU built by tax payer’s money often in those areas where private sector was not often ready to go due to high initial risk should not be transferred on they are becoming profitable. 
  1. Lack of clarity in valuation of PSU assets and absent of clear-cut polity promote crony capitalism as was reported by CAG in 2006 🡪 that surplus land was sold @ very low price.
  2. The social objective of formal jobs, need based goods, providing level playing field, etc. will be compromised.
  3. Disinvestment is not going to benefit the enterprise itself, as the proceeds are just used to reduce the fiscal deficits.
  4. The unfavourable market conditions have resulted into very low disinvestments proceeds for many years.
  5. Issues of mis-utilisation of natural resources.


  1. As per NITI AYOG 🡪 The S.D. should be done only in those areas where Private Sector is sufficiently present and the chances of monopoly are less E.g.- Air India.
  2. Disinvestment changes from case to case basis rather than one shoe fit for all approach.
  3. Judicial balance b/w labour welfare, social agenda and economic logic should be maintained.
  4. An Independent regulatory authority to regulate sale procedure and monitor its after effects.
  5. We should not wait for revival of sick enterprise and act proactively to get maximum price.


  • NITI Aayog CEO Amitabh Kant 🡪 Government should spend money on improving social indicators like health, education, nutrition”. 
  • PSUs are a necessity in areas. 
    • where government has a natural monopoly; like railways, metro rail, utilities or sensitive areas like satellite or nuclear power.
    • where private sector is not keen to invest, like public health in rural areas.
  • Disinvestment proceeds must be parked in a separate fund to be used in infrastructure investment. (“We should not be selling the family silver to pay the grocery bills).
  • “Private and public sector need not be completely divorced. While PSUs can build and own the infrastructure, private sector could do operations and maintenance efficiently.” 
    • For example: railway tracks could be state-owned, and trains with the private sector. 


  1. To disinvest to bridge the fiscal gap isn’t a viable idea each time. Comment.
  2. Is selling of capital assets to monetize the revenue deficit, as the case in India, a good move? Analyze.
  3. What are the pros and cons of privatisation of government assets? Suggest alternatives to disinvestment.


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