Public enterprises after 1991: CPSEs, the Ratna system, disinvestment and privatisation

Detail

1. What a CPSE is

• A central public sector enterprise (CPSE) is a government company in which the Centre, other CPSEs, or both together hold ≥ 51% of the shares.
• "Government company" is a company whose majority owner is the government.

• If only a state government owns the majority, the company is a state PSE (SPSE), not a CPSE.

• The DPE Public Enterprises Survey is the yearly report of the Department of Public Enterprises. It counts about 250-270 operating CPSEs; check the latest Survey for the current number.

• Why this matters after 1991
• The New Industrial Policy 1991 cut the list of sectors reserved for the public sector.
• CPSEs now had to compete with private and foreign firms.
• So the state had two choices. It could give strong CPSEs more freedom (autonomy), or it could sell its stake in weak or non-core CPSEs (disinvestment and privatisation).

2. The autonomy route: MoU and the Ratna system

Source for this route: Class 11, Liberalisation, Privatisation and Globalisation: An Appraisal, Box 3.1.

• Arjun Sengupta Committee (1984) looked at how to make PSEs more accountable. It led to the MoU system (1988).
• An MoU (Memorandum of Understanding) is a yearly performance agreement between a CPSE and its ministry.

• Targets are fixed at the start of the year. At the end, the CPSE is rated from "excellent" to "poor".

• Navratna and Miniratna status came in 1997. Maharatna status came in 2009-10.

• What Ratna status means. It is given to profitable CPSEs. The company's board gets more financial, managerial and operational autonomy, so it can invest, form joint ventures and compete globally without asking the ministry each time.
• Why the ladder works
• A CPSE earns more freedom by making more profit.
• With more freedom it can take faster decisions.
• Faster decisions help it compete with private and global firms.

Status	Key criteria	Board's investment power (per project)
Maharatna	Already a Navratna; listed with minimum public shareholding (as set by SEBI rules); 3-year average turnover > Rs 25,000 cr, net worth > Rs 15,000 cr, net profit after tax > Rs 5,000 cr; significant global presence	Up to Rs 5,000 cr or 15% of net worth
Navratna	Miniratna Category I and Schedule A; "excellent/very good" MoU rating in 3 of the last 5 years; composite score ≥ 60 on six performance parameters	Up to Rs 1,000 cr or 15% of net worth
Miniratna, Category I	Profit in each of the last 3 years; pre-tax profit ≥ Rs 30 cr in at least one of them; positive net worth	Up to Rs 500 cr
Miniratna, Category II	Profit in each of the last 3 years; positive net worth	Up to Rs 300 cr

• PIB confirms the Maharatna tests: listing with SEBI's minimum public shareholding, the three 3-year averages (turnover > Rs 25,000 cr, net worth > Rs 15,000 cr, net profit after tax > Rs 5,000 cr), significant global presence, and Navratna status first [2].
• PIB also states the Miniratna gate: continuous profit for 3 years and positive net worth [2].
• Key terms
• Net worth is what the owners own after all debts are paid: paid-up capital plus reserves.
• Schedule A is the top pay-scale grade of CPSEs (Schedules A to D), fixed by DPE on size and importance.

• Listed means the company's shares trade on a stock exchange.

• Worked example: the "Rs X cr or 15% of net worth" rule. Read it as "whichever is lower".

• A Navratna has net worth of Rs 5,000 cr. 15% of that is Rs 750 cr. Rs 750 cr is below Rs 1,000 cr, so the board can approve up to Rs 750 cr per project.

• A Maharatna has net worth of Rs 40,000 cr. 15% of that is Rs 6,000 cr. That is above Rs 5,000 cr, so the cap is Rs 5,000 cr.

• Numbers

• There are about 14 Maharatnas (verify on DPE). They include IOCL, SAIL, NTPC, ONGC, Coal India, BHEL, GAIL and PFC.

• An older PIB release counted 7 Maharatna, 16 Navratna and 71 Miniratna CPSEs [2]. That shows how fast the list has grown since.

• NCERT is outdated here

• HAL is listed in NCERT as a Navratna. It became a Maharatna in October 2024.
• The MTNL Navratna example is dated.
• Always check the current lists on DPE.

3. Privatisation and disinvestment: definitions

• Privatisation (NCERT) means the government gives up ownership or management of a government enterprise. It happens in two ways:
• the state withdraws from ownership and management; or

• the state makes an outright sale of the PSE to a private buyer.

• Disinvestment means selling part of the government's equity (shares) in a PSE. The state may keep control, or it may lose it.

• Disinvestment in the budget
• It is a non-debt capital receipt. The government gets money without borrowing it.
• It also reduces the state's financial assets. The state now owns fewer shares.

• It also reduces future dividend income. Fewer shares mean smaller dividends.

• Worked example

• The government owns 60 crore shares of a CPSE. The share price is Rs 200. The dividend is Rs 10 per share.
• It sells 6 crore shares (a 10% stake of a 60-crore-share base), so it gets 6 cr × Rs 200 = Rs 1,200 cr as a non-debt capital receipt.
• It now loses 6 cr × Rs 10 = Rs 60 cr of dividend every year.

• Lesson: using a one-time receipt to pay recurring expenses is unsound.

• Aims stated by NCERT

• improve financial discipline;
• speed up modernisation;
• bring in private capital and management skills;

• attract more FDI (foreign direct investment, meaning long-term foreign money invested in Indian firms).

• The government also says disinvestment money is meant to fund social sector and development programmes. It also aims to bring private capital, technology and better management practices into CPSEs [3].

4. Phases of disinvestment policy

• 1991-92: minority "bundled" sales
• Shares of strong and weak CPSEs were sold together in bundles to financial institutions.

• The target was Rs 2,500 cr. About Rs 3,040 cr was realised.

• 1993: Rangarajan Committee on disinvestment of shares in PSEs.

• 1996: Disinvestment Commission was set up to advise on which PSEs to sell and how.
• 1999-2004: strategic sales, with a separate Disinvestment Ministry.

• The companies sold were Modern Foods, BALCO, VSNL, Hindustan Zinc and IPCL.

• 2005: National Investment Fund (NIF) was set up. Disinvestment money went into a fund meant for social sector and capital spending.

• 2014-15 to 2016-17
• Disinvestment totalled Rs 87,714 cr, against Rs 53,670 cr in the previous three years [8].

• A "Rolling Plan" was brought in, so sales could be timed to good market conditions [8].

• 2016: the Department of Disinvestment was renamed DIPAM (Department of Investment and Public Asset Management). Its focus widened from "selling shares" to managing all government investment in CPSEs.

• Targets vs actuals
• Since 2010, actual receipts fell short of the budget target in every year except 2017-18 and 2018-19 [6].

Year	Budget target	Actual	Achieved
2010-11	Rs 40,000 cr	Rs 22,846 cr	57% [6]
2017-18	Rs 72,500 cr	Rs 1,00,045 cr	138% [6]
2018-19	Rs 80,000 cr	Rs 94,727 cr	118% [6]
2019-20	Rs 1,05,000 cr	Rs 50,304 cr	48% [6]
2020-21	Rs 2,10,000 cr	Rs 32,886 cr	16% [6]

• Big deals in the boom years
• In 2017-18, 37% of receipts came from the strategic sale of HPCL (to ONGC) [6].
• In 2018-19, REC was sold to PFC for Rs 14,500 cr [6].

• Trap: in both deals one CPSE bought another. Control stayed with the state, so these were not true privatisations.

• ETFs led fundraising. Between 2015-16 and 2020-21, ETFs raised the most disinvestment money of any method [6].

5. New PSE Policy 2021: strategic vs non-strategic

• The New Public Sector Enterprise Policy came in 2021 (Budget 2021-22) [3][4].
• A strategic sector is a sector where the state wants to keep a presence for security or public-interest reasons.
• In these sectors the state keeps a bare-minimum presence of CPSEs.

• The other CPSEs in these sectors are privatised, merged, made subsidiaries of other CPSEs, or closed [3].

• The four strategic groups 1. atomic energy, space and defence; 2. transport and telecommunications; 3. power, petroleum, coal and other minerals; 4. banking, insurance and financial services.

• Non-strategic sectors: all CPSEs are to be privatised, or else closed [3].

• Market signal. Between the policy's launch and November 2024, the NSE CPSE index rose 182.36% and the BSE CPSE index rose 146.92% [4].
• Faster exits from subsidiaries. In 2022 the Cabinet let boards of holding (parent) CPSEs recommend and carry out disinvestment or closure of their subsidiaries, units and JV stakes. It also gave more powers to the Alternative Mechanism, a group of ministers that decides sale terms [9].

6. Instruments of disinvestment

Route	Meaning	Examples
Minority stake sale	Sell a small share; the state keeps majority and control	IPO/FPO, OFS, CPSE ETF, Bharat-22 ETF, buybacks; LIC IPO (2022); Mazagon Dock OFS (April 2025) [5]
Strategic sale	Sell a large stake (≥ 50%) plus management control	Air India to the Tatas (January 2022); NINL (2022); BPCL bid withdrawn (2022); IDBI Bank (in progress; verify) [7]

• Minority sale tools
• An IPO (initial public offering) is the first sale of a company's shares to the public. An FPO (follow-on public offer) is a later sale by a company that is already listed.
• An OFS (offer for sale) lets an existing shareholder, here the government, sell shares directly through the stock exchange.
• A CPSE ETF or Bharat-22 ETF is an exchange-traded fund, a single traded unit that holds shares of many CPSEs. Bharat-22 also includes some private firms and PSBs.

• In a buyback, the CPSE uses its own cash to buy back shares from the government.

• Recent example. In April 2025, 3.61% of Mazagon Dock Shipbuilders was sold through OFS. It raised Rs 3,673.42 cr [5].

• Air India. The sale to Tata Sons was approved on 8 October 2021 [6]. The handover was completed in January 2022.
• IDBI Bank. The Cabinet approved its strategic disinvestment with transfer of management control in 2021. The stake was to be sold jointly by the Government of India and LIC [7].
• A golden share is a special share the state keeps in a privatised firm. It gives a veto over key decisions even though the state holds little equity.

7. Disinvestment in the budget

• Disinvestment is a non-debt capital receipt. It lowers the fiscal deficit (the government's total borrowing need in a year) without new debt. See the government-budget-fiscal-policy note.
• Since 2024-25 there has been no separate disinvestment target. It is included in "miscellaneous capital receipts".
• Dividends are the new focus
• The state now also stresses dividends from CPSEs.
• Dividend payouts have risen every year since 2020-21, even as government shareholding was reduced [5].

• DIPAM credits this to better capital management (rules on dividends, buybacks and bonus shares) and to spacing out sales [5].

• Asset monetisation means leasing out a public asset for a fixed period to earn money, without selling ownership. Roads, pipelines and power lines are examples.

• It runs through NMP 2021 (National Monetisation Pipeline) and NMP 2.0 (verify current).

• NCERT: about Rs 46,000 cr was raised in 2022-23.

8. Critique and counterpoint

Source: Class 11, Liberalisation, Privatisation and Globalisation: An Appraisal.

• Critique
• PSE assets were undervalued, so the nation lost wealth.

• The money was used to plug revenue shortfalls, meaning day-to-day spending gaps. It was not used to develop PSEs or build social infrastructure.

• Counterpoint

• Ratna status improved the performance of CPSEs.
• The government now prefers to keep profitable PSEs and let them grow globally and raise money from markets.
• The Economic Survey 2019-20 found that privatised CPSEs improved their net worth, net profit and productivity after strategic disinvestment [10].

Prelims Hooks

• CPSE means the Centre and/or other CPSEs hold ≥ 51%. A state-owned majority company is an SPSE, not a CPSE.
• Order of events: Arjun Sengupta Committee 1984 → MoU 1988 → Navratna/Miniratna 1997 → Maharatna 2009-10.
• Maharatna needs prior Navratna status, stock exchange listing with SEBI minimum public shareholding, and global presence. Its 3-year averages are turnover > Rs 25,000 cr, net worth > Rs 15,000 cr and PAT > Rs 5,000 cr [2].
• Board investment caps per project: Maharatna Rs 5,000 cr, Navratna Rs 1,000 cr (both, or 15% of net worth, whichever is lower), Miniratna-I Rs 500 cr, Miniratna-II Rs 300 cr.
• HAL became a Maharatna in October 2024. Trap: NCERT still shows it as a Navratna.
• Disinvestment is a non-debt capital receipt. It is not a revenue receipt. Dividends from CPSEs are non-tax revenue receipts.
• National Investment Fund 2005. DIPAM 2016. No separate disinvestment target from 2024-25.
• New PSE Policy 2021: 4 strategic groups with bare-minimum presence; non-strategic CPSEs are privatised or closed [3].
• Strategic sale = stake + management control (Air India, NINL). HPCL→ONGC and REC→PFC were CPSE-to-CPSE sales, so they were not privatisation [6].
• Golden share gives a veto with little equity. Asset monetisation (NMP) is leasing, not selling.

Mains Points

• Fiscal logic vs fiscal risk
• Disinvestment lowers the fiscal deficit without borrowing.
• But it is a one-time receipt that also cuts future dividends.

• Missed targets (only 16% met in 2020-21 [6]) made budget maths unreliable. This explains the shift to no fixed target from 2024-25, and to dividends and asset monetisation.

• Autonomy vs ownership exit. The Ratna system and the MoU improve CPSEs while the state keeps ownership. The New PSE Policy 2021 instead reduces the state's footprint. A good answer argues for both: keep and empower strategic, profitable CPSEs, and exit non-strategic, loss-making ones.

• Evidence of efficiency. Firms improved after strategic sale (Economic Survey 2019-20 [10]), and CPSE indices rose after 2021 [4]. Weigh this against undervaluation of assets, worker and social concerns, and receipts used for revenue gaps. Suggest fixes: transparent valuation, receipts used for capital spending, and a golden share where a public interest must be protected.
• Governance link (GS-II). Real autonomy needs a professional board, independent directors and less ministry interference. Otherwise Ratna status stays on paper.