GK Chronicle GK Chronicle

Indian Economy / Industry Sector

Disinvestment Policy in India


    Disinvestment is a process where the Government withdraws a portion of its equity not exceeding 49% in any Public Sector Enterprise ( PSE ). If the disinvestment leads at least 51% of equity withdrawal and if there is induction of private management, then it is called privatization i.e. selling a unit to private party.

    Disinvestment Policy

    • Two committees under the chairmanship of Dr. C. Rangarajan and G.V. Ramakrishna have examined the issues relating to the disinvestment.
    • Based on recommendations of these two committees, the Government of India evolved a broad disinvestment policy. The following are the salient features
      • Reducing the stake in non-strategic Public Sector Enterprises to 26% or 0% and retaining majority holding of at least 51% in strategic PSEs.
      • Widening the participation in the public sector equity and bringing in a greater sense of accountability.
      • Raising resources for investment in social sector like the education and the health.
      • Reduction of debt burden and soften the fiscal deficit.

    National Investment Fund

    • National Investment Fund ( NIF ) was constituted during January, 2005.
    • The proceeds that come from disinvestment of Central Public Sector Enterprises will be channeled into NIF.
    • From this Fund, there will be investment in social sector projects which encourage education, healthcare and generate employment.
    • There will be investment of capital ( for machinery and equipment ) in selected profitable and revivable PSEs that yield sufficient returns in order to expand their capital base to finance for their expansion and diversification.