The Initial Phase
The policy of the Government on disinvestment has evolved over a period and it can be briefly stated in the form of following policy statements made in chronological order:

(i) Interim Budget 1991-92 (Chandrashekhar Government)
The policy, as enunciated by the Government, under the Prime Minister Mr Chandrashekhar was to divest up to 20% of the Government equity in selected PSEs in favour of public sector institutional investors. The objective of the policy was stated to be to broad-base equity, improve management, enhance availability of resources for these PSEs and yield resources for the exchequer.

(ii) Industrial Policy Statement of 24th July, 1991
The Industrial Policy Statement of 24th July 1991 stated that the government would divest part of its holdings in selected PSEs, but did not place any cap on the extent of disinvestment. Nor did it restrict disinvestment in favour of any particular class of investors. The objective for disinvestment was stated to be to provide further market discipline to the performance of Public enterprises.

" In the case of selected enterprises, part of Government holdings in the equity share capital of these enterprises will be disinvested in order to provide further market discipline to the performance of public enterprises ".

(iii) Budget speech: 1991-92
In this pronouncement, the cap of 20% for disinvestment was reinstated and the eligible investors' universe was again modified to consist of mutual funds and investment institutions in the public sector and the workers in these firms. The objectives too were modified, the modified objectives being: "to raise resources, encourage wider public participation and promote greater accountability".

"In order to raise resources, encourage wider public participation and promote greater accountability, up to 20 per cent of Government equity in selected public sector undertakings would be offered to mutual funds and investment institutions in the public sector, as also to workers in these firms".

(iv) Report of the Committee on the Disinvestment of Shares in PSEs (Rangarajan Committee): April 1993
The Rangarajan Committee recommendations emphasized the need for substantial disinvestment. It stated that the percentage of equity to be divested could be up to 49% for industries explicitly reserved for the public sector. It recommended that in exceptional cases, such as the enterprises, which had a dominant market, share or where separate identity had to be maintained for strategic reasons, the target public ownership level could be kept at 26%, that is, disinvestment could take place to the extent of 74%. In all other cases, it recommended 100% divestment of Government stake. Holding of 51% or more equity by the Government was recommended only for 6 Schedule industries, namely:

(v) The Common Minimum Programme of the United Front Government: 1996
The highlights of the policy formulated by the United Front Government were, as follows:

• To carefully examine the public sector non-core strategic areas;
• To set up a Disinvestment Commission for advising on the disinvestment related
  matters;
• To take and implement decisions to disinvest in a transparent manner;
• Job security, opportunities for retraining and redeployment to be assured.

No disinvestment objective was, however, mentioned in the policy statement.

(vi) Disinvestment Commission Recommendations: Feb.1997- Oct. 1999
Pursuant to the above policy of the United Front Government, a Disinvestment Commission was set up in 1996. By August 1999, it made recommendations on 58 PSEs. The recommendations indicated a shift from public offerings to strategic / trade sales, with transfer of management, as the following table shows:

9.1. The Second Phase

(vii) Budget Speech: 1998-99
In its first budgetary pronouncement, the new Government decided to bring down Government shareholding in the PSUs to 26% in the generality of cases, (thus facilitating ownership changes, as was recommended by the Disinvestment Commission). It, however, stated that the Government would retain majority holdings in PSEs involving strategic considerations and that the interests of the workers would be protected in all cases.

"Government has also decided that in the generality of cases, the Government shareholding in public sector enterprises will be brought down to 26 per cent. In cases of public sector enterprises involving strategic considerations, government will continue to retain majority holding. The interest of workers shall be protected in all cases".

(viii) Budget Speech: 1999-2000
The policy for 1999 - 2000, as enunciated by the Government, was to strengthen strategic PSUs, privatize non-strategic PSUs through gradual disinvestment or strategic sale and devise viable rehabilitation strategies for weak units. One highlight of the policy was that the expression 'privatization' was used for the first time.

(ix) Strategic & Non-strategic Classification
On 16th March 1999, the Government classified the Public Sector Enterprises into strategic and non-strategic areas for the purpose of disinvestment. It was decided that the Strategic Public Sector Enterprises would be those in the areas of:

• Arms and ammunitions and the allied items of defence equipment, defence aircrafts and warships;
• Atomic energy (except in the areas related to the generation of nuclear power and applications of radiation and radio-isotopes to agriculture medicine and non-strategic industries);
• Railway transport.

All other Public Sector Enterprises were to be considered non-strategic. For the non-strategic Public Sector Enterprises, it was decided that the reduction of Government stake to 26% would not be automatic and the manner and pace of doing so would be worked out on a case-to-case basis. A decision in regard to the percentage of disinvestment i.e., Government stake going down to less than 51% or to 26%, would be taken on the following considerations:

• Whether the industrial sector requires the presence of the public sector as a countervailing force to prevent concentration of power in private hands, and
• Whether the industrial sector requires a proper regulatory mechanism to protect the consumer interests before Public Sector Enterprises are privatized.

(x) Budget speech: 2000 - 2001
The highlights of the policy for the year 2000-01 were that for the first time the Government made the statement that it was prepared to reduce its stake in the non-strategic PSEs even below 26% if necessary, that there would be increasing emphasis on strategic sales and that the entire proceeds from disinvestment/privatization would be deployed in social sector, restructuring of PSEs and retirement of public debt. The main elements of the policy are reiterated as follows:

• To restructure and revive potentially viable PSEs;
• To close down PSEs which cannot be revived;
• To bring down Government equity in all non-strategic PSEs to 26% or lower, if necessary;
• To fully protect the interests of workers;
• To put in place mechanisms to raise resources from the market against the security of PSEs' assets for providing an adequate safety net to workers and employees;
• To establish a systematic policy approach to disinvestment and privatization and to give a fresh impetus to this programme, by setting up a new Department of Disinvestment;
• To emphasize increasingly on strategic sales of identified PSEs;
• To use the entire receipt from disinvestment and privatization for meeting expenditure in social sectors, restructuring of PSEs and retiring public debt.

(xi) Extracts from the Address by the President to the Joint Session of Parliament (February, 2001)
"The public sector has played a vital role in the development of our economy. However, the nature of this role cannot remain frozen to what it was conceived fifty years ago - a time when the technological landscape, and the national and international economic environment were so very different. The private sector in India has come of age, contributing substantially to our nation-building process. Therefore, both the public sector and private sector need to be viewed as mutually complementary parts of the national sector. The private sector must assume greater public responsibilities just as the public sector needs to focus more on achieving results in a highly competitive market. While some public enterprises are making profits, quite a few have accumulated huge losses. With public finances under intense pressure, Governments are just not able to sustain them much longer. Accordingly, the Centre as well as several State Governments are compelled to embark on a programme of disinvestment.

The Governments' approach to PSUs has a three-fold objective: revival of potentially viable enterprises; closing down of those PSUs that cannot be revived; and bringing down Government equity in non-strategic PSUs to 26 percent or lower. Interests of workers will be fully protected through attractive VRS and other measures. This programme has already achieved some initial successes. The Government has decided to disinvest a substantial part of its equity in enterprises such as Indian Airlines, Air India, ITDC, IPCL, VSNL, CMC, BALCO, Hindustan Zinc, and Maruti Udyog. Where necessary, strategic partners would be selected through a transparent process".

(xii) Budget Speech: 2001 - 2002
Objectives

To use the proceeds for providing -

• Restructuring assistance to PSUs
• Safety net to workers
• Reduction of debt burden
• Additional budgetary support for the Plan, primarily in the social and infrastructure sectors (contingent upon realization of the anticipated receipt.)

(xiii) Extracts from the Address by the President to the Joint Session of Parliament (February, 2002)
The Public sector has played a laudable role in enabling our country to achieve the national objective of self-reliance. However, the significantly changed economic environment that now prevails both in India and globally makes it imperative for both the public sector and the private sector to become competitive. Learning from our experience, especially over the last decade, it is evident that disinvestment in public sector enterprises is no longer a matter of choice, but an imperative. The prolonged fiscal haemorrhage from the majority of these enterprises cannot be sustained any longer. The disinvestment policy and the transparent procedures adopted for disinvestment have now been widely accepted and the shift in emphasis from disinvestment of minority shares to strategic sale has yielded excellent results. The Government has taken two major initiatives to improve the safety net for the workers of PSUs. The first enhanced VRS benefits in those PSUs where wage revision had not taken place in 1992 or 1997. The second increased training opportunities for self-employment for workers retiring under VRS.

(xiv) Extracts from the Budget Speech for 2002-03 of the Finance Minister
Privatization:

With the streamlined procedure for disinvestment and privatization, I am happy to report that the Government has now completed strategic sales in 7 public sector companies and some hotels properties of the Hotel Corporation of India (HCI) and the India Tourism Development Corporation (ITDC). The change in approach from the disinvestments of small lots of shares to strategic sales of blocks of shares to strategic investors has improved the price earning ratios obtained. We expect to complete the disinvestment in another 6 companies and the remaining hotels in HCI and ITDC this year. Disinvestment receipts for the present year are estimated at Rs. 5,000 crore excluding the special dividend from VSNL of Rs. 1,887 crore. Encouraged by these results, I am once again taking credit for a receipt of Rs. 12,000 crore from disinvestment next year.

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