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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.