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Any doubts?

  1. Shivam Patel

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    There is a company named LegalRaasta and it is India’s leading legal service provider company.
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  2. rhea verma

    keeping india’s socialist ethos in mind-complete transfer is far fetched.considering the drain on public exchequer by loss making PSUs-disinvestment only plausible option.though the current disinvestment procedure is inadequate.govt is using it as a short term tool to meet fiscal deficit instead of investing majority of it back in the PSUs R&D,staffing,upgradation,expertise etc.focus should also be on revitalising SMSEs.secondly govt should restrict itself to core sector PSUs as far as possible.

    1. Rohit Pande

      So, I think the write way to assess is what PSUs are actually producing public goods vs. private goods.

      Those like HMT, Ambassador car manufacturer (don’t remember the name) etc can and should be done away with but the rest of them (essential ones) need to be taken care of in the ways you mentioned.

      1. Samir Singh

        Hindustan motors

  3. Srinath Sundareswaran

    As long as we don’t go full Thatcher we should be good. Quarter or half Thatcher is fine. But this is a purely money making exercise for the government, of course this is expressly stated by the centre themselves, about the only time policymaking would be so straightforward. There is no cause-effect relationship between having them raise money and the institutions running consequently on best practices and hence competitive on the global market.

    1. Rohit Pande

      But in case of strategic sale of the entities, they lose the say in management right – which then falls into private hands. I can safely assume that the execution part would entertain best practices right?

      1. Srinath Sundareswaran

        You’re right, I did not see it from that angle. My above comment as I realize now is more of a sweeping generalization.

  4. Arindam Sarkar

    To add specifically, PSU providing a safety net for the poor, like those concerned with handlooms, cottage industries, jute, cheap pharmaceuticals, special finance and development corporations, TRIFED, etc should not be abandoned. Their primary purpose of existence is not revenue generation.

    Similarly, seignorage, large PSU banks (merge them instead), LIC, Space PSUs, major power-plants (especially dams and nuclear) and power grid, defence PSUs, etc are critical to the stability of the nation. They should not be privatised.

  5. Arindam Sarkar

    Disinvestment is a good idea to boost efficiency. Frankly, government should focus on governance, public goods including basic civic services and, maybe, businesses that have security implications, viz. ammunition, war supplies, etc. Rest of it should be disinvested.

    I seen no reason why the government needs to manufacture watches (HMT), cement, vegetable oil, etc. However, things like railways, airport, shipping ports, transportation corridors, etc should have some government involvement at least.

    The problem with the statement above is that it assumes that disinvestment is a long-term revenue source. That’s a slippery slope. We shouldn’t deepend on that.

    1. Arindam Sarkar

      *For the record, I went through the list of PSUs on Wikipedia while writing this. 🙂

  6. Shikhar Sachan

    folks, my knowledge wrt to disinvestment is pretty limited. Can you help me fill in the gaps with key milestones and some analysis.
    Here’s what I know.
    1. Pre 1991 : Many proposals to dilute around 25% of stake. Govt. in no mood. Thinks getting in private players will defeat the purpose of
    2. ’91 : Fiscal Imbalance, BOP issues. New Industrial Policy announced. Disinvestment would help close on the fiscal deficit. Besides govt. starts to feel that it was about time that market forces determined what was right for PSEs rather than planning. Still it was not privatization as UTI was the main purchaser of shares.
    3. Disinvestment around the globe has been pretty shoddy. India is no exception. The first round of disinvestments happened in the last quarter of ’91. They were very hurriedly done because of the pressure from IMF.
    4. ’96 : change in govt. Rethinking Disinvestment. D Commission constituted. Came with with a policy, processes, guidelines(they coined the term ‘navratnas’).
    5. However the disinvestment process didn’t pick up because this decade was marked by the financial scams(ketan parikh, harshad mehta, etc etc) due to which stock prices remained dismal thus not inviting many buyers.
    6. ’98 : Setting up of a separate ministry for disinvestment. Their primary policy has been to get private players run these organizations.

    Don’t know if any jazz has happened after this.

  7. Sajina Ban

    Pension fund managers are focus on the Government disinvestment programme. NRI have been eligible in the NEW. but the ambiguities in regulations they were not investing. NPS is a attractive investment option for NRI especially middle East as most do not have permanent Job.

  8. Sajina Ban

    The economic policy initiated in July 1991 clearly indicated that PSUs had shown a very negative rate of return on capital employed. Inefficient PSUs had become and were continuing to be a drag on the Government’s resources turning to be more of liabilities to the Government than being assets. Many undertakings traditionally established as pillars of growth had become a burden on the economy. The national gross domestic product and gross national savings were also getting adversely affected by low returns from PSUs. About 10 to 15 % of the total gross domestic savings were getting reduced on account of low savings from PSUs. In relation to the capital employed, the levels of profits were too low.

  9. Aditya Kalia

    I believe that the government has no business in doing business. Their prime responsibility is to provide governance and a conducive environment where business can flourish. Moreover, majority of PSEs are established in inaccessible areas, in accordance with the 1st and 2nd Five Year Plans, when the objective was to generate employment.

    With the shift of focus of our economic policy, PSEs are no longer major employment creators and most of them are loss making because of lack of technological upgradation and poor supply chain management. The time is ripe that Govt. should get rid of them and generate resources for implementation of governance activities. While sick PSEs like Scooters India Ltd., HMT etc can be completely sold off, stake in well performing ones like NTPC, ONGC, IOCL etc. can be reduced to bring in fresh capabilities and keeping them on lines of technological modernisation.

    However, the proceeds should not be completely used to meet the fiscal deficit figures or for implementation of popular welfare schemes. They should be used judiciously to create new vocational training and skill development centres, educational scholarships for the poor and needy, upgradation and creation of educational facilities etc. There must be a clear roadmap on how the disinvestment proceeds will be used and should be passed separately by the Parliament.

  10. Pushpendra Rana

    Disinvestment is the offshoot of 1991 economic reforms. It is an important element in the budget, as the new govt. is setting huge targets for disinvestment by diluting stakes in good PSUs.

    The govt. is banking on disinvestment as a tool to reduce to supplement the ambitious fiscal deficit target.

    1. Focus Ias

      So what happened here?

      We did not go for disinvestment? We just shut shop? Why?
      It might be a silly question though!

  11. Aryan Aryan

    How is thsi important for UPSC – What are the big companies whose shares are being lost and will the private players govern decisions now?

    Do you have a good news article?

Don’t divest AI, give it 5 years to revive: panel


Mains Paper 3: Economy | Infrastructure: Energy, Ports, Roads, Airports, Railways etc.

From UPSC perspective, the following things are important:

Prelims level: Parliamentary panels

Mains level: Crucial suggestion by the parliamentary panel as the government is on the verge of disinvestment in the Air India(AI)


Suggestion by the Parliamentary Panel to the government

  1. This is not the appropriate time to divest government stake in Air India (AI)
  2. And it should be given at least five years to revive and its debt written off
  3. The panel has concluded that the government should review its decision to privatise or disinvest AI
  4. And explore the possibility of “an alternative to disinvestment of our national carrier which is our national pride”
  5. Important comment by the panel: It would be lopsided to assess and evaluate the functioning of AI solely from business point of view, as has been done by NITI Aayog

Other concerns noted by the panel

  1. It has concluded that the equity infusion in the national carrier[as part of the turnaround plan (TAP)] is adversely affecting its financial and operational performance
  2. And “forcing” the airline to take loans “at a higher interest rate to meet the shortfall

NITI bats for divestment in 34 PSUs


Mains Paper 3: Indian Economy, Resource Mobilisation.

The following things are important from UPSC perspective:

Prelims: Strategic disinvestment.

Mains level: Nothing Much.



  1. Government think-tank NITI Aayog has recommended strategic disinvestment of 34 sick public sector units
  2. Earlier, the Prime Minister’s Office (PMO) had asked the think tank to look into the viability of sick state run companies.
  3. The Centre plans to raise funds to the tune of Rs. 72,500 crore through stake sale in PSUs this fiscal, including Rs. 46,500 crore from minority stake sale.


Strategic disinvestment

  1. In strategic disinvestment the government sells major portion of its stake to a strategic buyer and also gives over the management control.
  2. Under it, the strategic Partner, may hold less percentage of shares than the government but the control of management will be wit him.
  3. For example, in a PSU, where the government holding 51%, and out of this, sale of 25% to the strategic partner while the government holding 26% share also is a case of strategic sale. Here, the remaining shares (49%) will be dispersed among the public.
  4. The Finance Ministry has empowered the NITI Ayog to advise the government on the strategic disinvestment of the CPSEs.
  5. The procedure for strategic sale will be prepared by Department of Investment and Public Asset Management (DIPAM).

Convicted companies will not be allowed to participate in PSU privatization


Mains Paper 2: Governance | Government policies and interventions for development in various sectors and issues arising out of their design and implementation.

From UPSC perspective, the following things are important:

Prelims level: Particulars of the DIPAM.

Mains level: It is one of the many steps taken by the government for proper implementation of divestment.


New disinvestment guidelines

  1. According to the new guidelines, the government will disqualify any company convicted for fraud or serious corporate offences from participating in the privatization of state-owned enterprises
  2. Any firm facing
    (1) a conviction by a court of law or
    (2) indictment/adverse order by a regulatory authority or
    (3) has faced market regulator Sebi orders relating to fraud
    will be disqualified

Earlier Criteria

  1. While selecting bidders earlier, the government used to look into the criteria like net worth and experience
  2. It has now decided to look into these additional criteria for qualification or disqualification of parties seeking to acquire stakes in central public sector enterprises (CPSEs)

Governments plan on Divestment

  1. The government has set a target of Rs15,000 crore to be raised from strategic disinvestment of PSUs in the current fiscal
  2. It has selected a host of companies, including Air India, for strategic stake sale and has fast-tracked the appointments of asset valuers and legal firms which would manage the process



  1. The Department of Disinvestment has been renamed as Department of Investment and Public Asset Management or ‘DIPAM’, a decision aimed at proper management of Centre’s investments in equity including its disinvestment in central public sector undertakings
  2. Finance Minister Arun Jaitley had announced renaming of the Department of Disinvestment in his budget speech for 2016-17
  3. Initially set up as an independent ministry (The Ministry of Disinvestment) in December 1999, the Department of Disinvestments came into existence in May 2004 when the ministry was turned into a department of the Ministry of Finance
  4. The department took up all the functions of the erstwhile ministry which broadly was responsible for systematic policy approach to disinvestment and privatisation of Public Sector Units (PSUs)

Centre seeks advisers for AI disinvestment

Image Source


Mains Paper 2: Governance | Government policies and interventions for development in various sectors and issues arising out of their design and implementation.

From UPSC perspective, the following things are important:

Prelims level: Not Much

Mains level: Much awaited step. Government was thinking about this step, long ago.


Appointment of Financial Advisers

  1. The Union government has floated an expression of interest (EOI) to appoint two financial advisers and one legal adviser for strategic disinvestment of Air India
  2. Government is taking forward the process to divest a stake in the ailing national carrier
  3. The Government has also formed a Group of Ministers (GoM) led by to draw the roadmap
  4. The decision to appoint advisers to steer forward the disinvestment process was taken by the GoM

Government’s plan

  1. The Government of India has in-principle decided to consider the disinvestment of the AI Group as a whole or its constituents fully or part thereof through strategic sale
  2. Government will also transfer the management control of the AI

Govt clears strategic sale of Central Electronics

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Mains Paper 2: Governance | Government policies and interventions for development in various sectors and issues arising out of their design and implementation.

From UPSC perspective, the following things are important:

Prelims level: Particulars of the CEL

Mains level: Government has well structured plan of divestment, this step is also a part of it.


100% Strategic Sale

  1. The government has approved a 100 per cent strategic sale along with transfer of management control of Central Electronics Ltd (CEL)
  2. Government is also is looking to appoint a legal firm for advising on strategic sale of CEL

Government’s Plan

  1. The government has budgeted to raise 72,500 crore in 2017-18 through stake sale in PSUs
  2. This includes Rs 46,500 crore from minority stake sale, Rs 15,000 crore from strategic disinvestment and Rs 11,000 crore from listing of PSU insurance companies

Particulars of the CEL

  1. It was incorporated in 1974, under the administrative control of Ministry of Science and Technology
  2. The CPSE is wholly owned by the government and has a net worth of Rs 50.34 crore as on March 2017

Cabinet approves new mechanism to speed up strategic disinvestment

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Mains Paper 2: Governance | Government policies and interventions for development in various sectors and issues arising out of their design and implementation.

From UPSC perspective, the following things are important:

Prelims level: Particulars of CPSE

Mains level: Effective step by government for implementing its disinvestment strategy.


Panel for strategic Disinvestments

  1. The cabinet committee on economic affairs (CCEA) has mandated a panel headed by FM to oversee the asset sale process
  2. The panel will help to accelerate strategic disinvestments in central public sector enterprises (CPSEs)
  3. It will also help the government to raise more revenue from asset sales

Government’s Target

  1. The government has set an ambitious target of raising Rs 72,500 crore from disinvestment in 2017-18, including Rs 15,000 crore from strategic asset sales
  2. So far this year, the government has raised around Rs 10,000 crore through stake sales

What is strategic disinvestment?

  1. It implies the sale of a substantial portion of government stake in a CPSE with transfer of management control

Centre to wind up Hindustan Cables

  1. The Cabinet has given its nod for a strategic sale of sick public sector firm Bharat Pumps and Compressors
  2. Also for the closure of Hindustan Cables that has stopped output since 2003
  3. It has also approved an outlay of more than Rs.4,800 crore to pay statutory dues to these firms’ employees and creditors

PMO nod for closure of sick govt. companies

  1. News: NITI Aayog’s proposal for shutting down 17 sick or loss-making PSUs has received the go-ahead from Prime Minister’s Office (PMO)
  2. Strategic sales: Another proposal, aimed at reducing Govt ownership to below 51% in about 22 PSUs
  3. The approval is not for outright 100% sales
  4. Govt won’t exit these companies, but will go on to be a minority shareholder post disinvestment

Discuss: What is strategic disinvestment? What is the need for Govt to take up disinvestment of some PSUs?

Centre begins stake sale in 51 firms

  1. News: The government plans to sell minority stakes in 51 listed as well as unlisted companies including RIL, ICICI Bank, Axis Bank, L&T etc., and might exit in 3 years
  2. Minority stake: A shareholding of less than 50% of a company’s equity capital which is not a controlling stake
  3. Government holds minority stake in these companies through Specified Undertaking of UTI (SUUTI)
  4. SUUTI was formed in 2003 as an offshoot of erstwhile Unit Trust of India (UTI)
  5. SUUTI is looking at selling the investments either through an OFS, block deal, bulk deal or regular sale through stock exchanges
  6. Impact: Sale would help the government in meeting its ambitious disinvestment targets

NITI Aayog submits proposals for divestment- II

  1. The second set of suggestions is a separate list of 15 PSUs in which it has recommended strategic disinvestment on priority
  2. This list has been submitted to the Department of Investment and Public Asset management in the Finance Ministry
  3. Background: The Cabinet Committee on Economic Affairs had directed the Aayog to identify PSUs that the Department could take up for strategic disinvestment and also suggest norms for doing so
  4. Any disinvestment of government’s shareholdings, closure or mergers of PSU will need the Union Cabinet’s approval

NITI Aayog submits proposals for divestment- I

  1. Context: The NITI Aayog has submitted two sets of recommendations to the Centre for strategic disinvestment of State-owned companies
  2. First is a list of recommendations on each of the sick and loss-making government-owned companies & there are about 74 such companies
  3. Closure: Suggested for about 25 companies in which revival plans were attempted but had failed
  4. After closure: Their assets, especially land holdings, could be disposed off and employees be offered voluntary retirement
  5. In the remaining cases, either mergers with other public sector units or strategic disinvestment is recommended
  6. In some companies, the Aayog preferred to let revival plans run their course, before taking a call on their future

A background to the surplus land auction by Govt

  1. Land bill: The decision comes in the wake of the Centre’s Land Acquisition Bill failing to clear Parliament even a year after an ordinance for it was allowed to lapse
  2. Even the Government’s allies are opposed to this Bill
  3. Committee: Set up under Economic Affairs Secretary Shaktikanta Das is inventorying all the holdings, including that of PSUs
  4. This is being done in coordination with the Urban Development Ministry
  5. Also, this kind of strategic sale was also suggested by this year’s Economic survey

Centre plans to auction surplus land to industry

  1. Land bank: Centre is examining the possibility of making a bank of all its surplus land holdings across the country
  2. From this land bank, parcels could be auctioned to private industry
  3. Aim: To ensure that non-availability of land doesn’t dampen new investments and economic growth
  4. Other than for private industry, such land identified in Delhi, Mumbai and other metros could be used for urban renewal projects

PSU strategic sale roadmap

  1. Context: NITI Aayog will submit a blueprint for divesting government’s stake in some PSUs and strategic sale of those that have been sick for a long time by this month
  2. Lists: First list will be of those PSUs where government can sell its stake to maximise proceeds from such divestments
  3. Another list of PSUs which have been sick for a long time and cannot be revived
  4. Aayog will recommend their closure and selling off accordingly
  5. Background: Budget 2016-17 had mentioned that NITI Aayog will identify Public Sector Units for strategic sale

Value of PSU on sale to include market price of land

  1. News: The govt will include the market value of the land in the reserve price when a PSU is divested
  2. Reason: The asset valuation will be more appropriate than the equity share valuation for arriving at the reserve prices of PSUs
  3. Future: The govt has asked the NITI Aayog to identify the PSUs where the govt should exit from management control
  4. Strategic Sales: The govt divests management control along with its shareholding

Centre earns $5 bn by PSU share sale this year

  1. Government’s disinvestment kitty has almost doubled this year with over Rs.35,000 crore garnered through PSU share sales.
  2. Govt. is targetting at least Rs.50,000 crore of funds from sale of the PSU shares in 2016.
  3. The govt. will look for right market conditions and positive global cues to resume its disinvestment drive in the new year.
  4. The trends in the crude and metal prices would hold the key for the new year, as planned portfolio largely comprises of commodity stocks.

What exactly is Disinvestment?

  1. It is an act of selling shares not exceeding 49% in profit-making public sector companies at a market premium.
  2. The objective is to raise money for the govt. to reduce its fiscal deficit.
  3. As a word of caution, govt. will not go for disinvestment of more than 25% of its stake, for fears of strategic investor.
  4. As majority of the decisions of PSUs need to be approved by 3/4th majority, they can be blocked, if govt. has less than 75% stake.
  5. Strategic Investor is any person/group of person holding 26% of the shares.

CCEA approves 10 per cent stake sale in CIL

The CCEA approved a 10% disinvestment in Coal India, the 3rd govt. stake sale in the company’s history.

  1. At the company’s current market capitalisation, it will fetch the govt. around Rs. 21,100 crore.
  2. This will go a long way in meeting the disinvestment target of Rs.69,500 crore for this financial year.
  3. Till now, the govt. was able to sell its stake in only 4 companies — Power Finance Corporation, Rural Electrification Corporation, Dredging Corporation and Indian Oil Corporation.
  4. The Dept. of Disinvestment has asked for the disinvestment target to be brought down to Rs.30,000 crore.

Disinvestment: Rs.30,000 crore, a realistic target?


  1. The government raised around Rs.25,000 crore against the target of Rs.58,425 crore – we missed the targets again!
  2. The Dept. of Disinvestment now says that only Rs. 30,000 Crores is a realistic target and rest is just wishful thinking.
  3. For disinvestment in 2015-16, the government has a pipeline of over 20 PSUs for which it has cabinet approval of 10 % stake sale each in OIL, IOC, Nalco, NMDC, besides, 5 % in NTPC, ONGC, BHEL.
  4. Because of the pressure of high targets, the actual realisation gets impacted as strategy cannot be worked out properly.

[Discuss] The disinvestment debate. Are we on the correct path?


[cd explains] Disinvestment: Challenges & Opportunities


  1. The term disinvestment refers to the process through which the government offloads a portion of its shareholding in a PSU.
  2. Capital receipts so garnered will help in central government finances.
  3. Importantly, however, under disinvestment, government will remain the majority shareholder even if its post-divestment shareholding is smaller than before.

    The government hopes to garner Rs.69,500 crore of capital receipts this year from strategic sale and selling shares in unlisted companies.

Standing firm at 51 per cent

  1. Government ownership with at least 51% stake after divestment has been non-negotiable in most cases.
  2. Economic logic would suggest a further divestment in some PSBs to enable them raise additional capital.

The usual challenges

  1. Beware of the critics – Selling ‘family jewels’, as the critics of disinvestment call it, can never be popular – not with the unions nor with the politicians.
  2. Attempts to blunt the criticism by letting the market discover the price – through book-building process and so on – have not helped.
  3. Accountability & Timing issues – There is never a good time anymore than there is a correct price. Consequently, decision-making by the government is a thankless task.

Cabinet approves 10% stake sale in IOC and 5% in NTPC

  1. The approvals are part of Rs 41,000 crore disinvestment target for the current financial year.
  2. Buoyed by diesel price deregulation, the government is looking at selling stake in India’s largest fuel retailer IOC for the second time in 13 months.
  3. The government currently holds 68% in IOC & 74% in NTPC.

    For the current fiscal, the government has identified more than a dozen PSUs for stake sale, including National Fertilizers, MMTC, Hindustan Copper and ITDC.

:( We are working on most probable questions. Do check back this section.

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