Privatisation and disinvestment

Detail

1. Core definitions

• Public Sector Enterprise (PSE / PSU) is a company that the government owns and runs. When the Central government owns it, it is called a CPSE (Central Public Sector Enterprise).

• Privatisation means the government gives up the ownership or management of a government enterprise. It happens in two ways: 1. The government withdraws from ownership and management of the company. 2. The company is sold outright to a private buyer.

• Disinvestment means the government sells part of a PSE's equity (its shares) to the public.

• Every privatisation involves disinvestment. But disinvestment does not always mean privatisation. If the government sells only 10% of a company, it still owns and runs it.

• In 1991 the government did not privatise directly. It chose gradual disinvestment, which was part of the move from a state-led economy to a market economy (Class 9, Class 10).

2. Why the government did it: the stated aims

• Financial discipline: when private shareholders own part of a company, they watch its profits and costs, so managers become more careful.
• Modernisation: private capital pays for new technology and equipment.
• Private capital and managerial skill: these are brought in to improve how PSUs perform.
• FDI inflows: when state assets are open to buyers, including foreign buyers, it signals that India welcomes investment. This was meant to strongly boost FDI (foreign direct investment, meaning long-term foreign money invested in Indian firms).
• The present official aim: use disinvestment money to fund social sector and development programmes, and bring private capital, technology and best management practices into CPSEs [2].

3. Two types of sale: strategic vs minority

Feature	Strategic sale	Minority sale
Stake sold	A large block, often 50% or more	A small stake
Management control	Passes to the private buyer	Stays with the government
Example	Air India to Tata (2022); BALCO, VSNL (1999-2004)	An OFS of a few per cent (see below)

• Worked example: the government owns 100% of a CPSE.
• It sells 26% through the stock market. It still holds 74%, so it keeps control. This is a minority sale.

• It sells 51% with management rights to one buyer. It is left with 49% and loses control. This is a strategic sale, which is privatisation.

• Other ways to sell shares:

• Offer for Sale (OFS) is a sale of government-held shares through the stock exchange.
• An ETF (exchange-traded fund) is one fund that holds shares of many CPSEs, which investors can buy and sell like a single share.
• Share buybacks and IPOs are the other methods.

• ETFs brought in the highest receipts in 2015-16 to 2020-21 [3].

• CPSE-to-CPSE sales: some "strategic" sales went to another government company. So the money reached the budget, but the company was not privatised.

• HPCL sold to ONGC (2017-18) raised Rs 36,915 crore, which was 37% of that year's receipts [3].
• REC sold to PFC (2018-19) raised Rs 14,500 crore [3].

4. The autonomy route: Ratna status

• The idea is reform without selling. Selected CPSEs get more financial, managerial and operational freedom, for example to invest without asking a ministry every time. The aims are efficiency, professionalism and global competitiveness.
• NCERT examples:
• Maharatna: IOCL, SAIL
• Navratna: HAL, MTNL, IRCTC

• Miniratna: BSNL, Airports Authority of India

• Scholars' view: Ratna status improved performance. But then the government partly privatised these firms instead of helping them grow into global players.

• The criteria for each status are covered in the industrial-policy-psu-msme note.

5. Institutions and milestones

• 1996: The Disinvestment Commission was set up in August 1996. 40 PSUs were sent to it for advice [4].
• 1999-2004: The first wave of strategic sales: Modern Foods, BALCO, VSNL, Hindustan Zinc and Maruti.
• 2005: From 1 April 2005, disinvestment money was placed in the National Investment Fund (NIF). The money is credited to the Consolidated Fund of India (the government's main account) and then set aside for the NIF. Professional fund managers run the NIF to earn returns without reducing the corpus (the main amount) [5].
• 2016: DIPAM (Department of Investment and Public Asset Management, under the Finance Ministry) became the nodal department (the lead department in charge).
• 2021: New Public Sector Enterprise (PSE) Policy. It gives a clear plan for both strategic and non-strategic sectors [2][3].
• Strategic sectors: the government keeps a bare minimum presence. Other CPSEs in these sectors are privatised, merged, made subsidiaries of other CPSEs, or closed [2]. There are four groups [3]:
  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: CPSEs are privatised or closed [2].

• Excluded from the policy: development finance institutions, major port trusts, and entities that support vulnerable groups [3].

• January 2022: Air India. The strategic sale was completed on 27 January 2022 [6].

• The buyer was Talace Pvt Ltd, a fully owned subsidiary of Tata Sons [6].
• The government received Rs 2,700 crore in cash [6].
• The buyer took on Rs 15,300 crore of debt [6].
• The buyer got 100% of Air India, 100% of AIXL and 50% of AISATS [6].

• The Cabinet approved the sale on 8 October 2021 [3].

• May 2022: The LIC IPO.

• After 2022: The mechanism now works through market sales more than big strategic deals.
• Example: an OFS of 3.61% of Mazagon Dock Shipbuilders in April 2025 raised Rs 3,673.42 crore [7].
• IDBI Bank, Shipping Corporation of India, BEML, NMDC Steel, HLL Lifecare and PDIL were in the strategic-sale pipeline [8].

6. The record: targets vs actual receipts

• Realisation ratio = (Amount realised ÷ Target) × 100
• 1991-92: 3,038 ÷ 2,500 × 100 ≈ 121.5%. The government collected about Rs 540 crore above the target.
• NCERT error: NCERT says Rs 3,040 crore was mobilised "more than the target". In fact, Rs 3,040 crore was the total collected. The amount above the target was only about Rs 540 crore.

Year	Target (Rs cr)	Realised (Rs cr)	%
1991-92	2,500	~3,040 (3,038)	~121%
2016-17	56,500	47,743	85% [3]
2017-18	72,500	1,00,045	138% [3]
2018-19	80,000	94,727	118% [3]
2019-20	1,05,000	50,304	48% [3]
2020-21	2,10,000	32,886	16% [3]
2021-22	1,75,000	9,330 (as of 24 January 2022) [6]	—
2022-23	65,000 (revised 50,000)	NCERT: "about 46,000"; DIPAM: about 35,000 (verify)	—

• The pattern: targets kept rising, but actual receipts fell short in most years [3]. Only 2017-18 and 2018-19 beat the target, and that was mainly because of the HPCL and REC sales between CPSEs.
• Backlog: 21 cases cleared by the Cabinet since 2015-16 had not been completed [3].
• Shift towards dividends: the government's share in CPSEs has been reduced step by step. Even so, CPSE dividend payouts (the share of profit a company pays to its owners) have risen since 2020-21 [7]. Dividend receipts were Rs 30,284 crore in 2024-25 (as of 5 December 2024) [7].
• Market value: since the New PSE Policy (January 2021), the NSE CPSE index rose 182.36% and the BSE CPSE index rose 146.92% (as of November 2024) [8].

7. Critique (Class 11)

• Undervaluation:

• PSE assets were sold below their true value → the government lost money → critics called it an "outright sale of public assets".

• Use of the money:

• The money filled revenue gaps, meaning it paid for routine spending. It was not used to develop PSEs or build social infrastructure.

• Critics call this selling the "family silver" to pay current bills. A one-time asset sale cannot pay for spending that repeats every year.

• Class 11 debates:

• Should profitable PSUs be sold?
• Should PSE losses be paid for out of the public budget?

• Is disinvestment an efficiency drive, or a sale of public property to vested interests?

• Ratna paradox: the government first gave these firms autonomy, then sold stakes in them. So they never became global champions.

• Counter-view: the Economic Survey (2019-20) found that disinvestment improves firm performance and productivity and helps create wealth [9].

Prelims Hooks

• Privatisation means giving up ownership or management. Disinvestment means selling part of a PSE's equity. Every privatisation involves disinvestment, but not every disinvestment is privatisation.
• Strategic sale means management control passes to the buyer (often a stake of 50% or more). In a minority sale, the government keeps control.
• DIPAM has been the nodal department for disinvestment since 2016, under the Ministry of Finance.
• The Disinvestment Commission was set up in August 1996 [4]. The National Investment Fund has run since 1 April 2005 [5].
• The New PSE Policy (2021) has 4 strategic sector groups, in which the government keeps a bare minimum presence. In non-strategic sectors, CPSEs are privatised or closed [2][3].
• Air India went to Talace (Tata Sons) on 27 January 2022 for Rs 2,700 crore in cash plus Rs 15,300 crore of debt taken over [6].
• HPCL sold to ONGC (2017-18) is a trap: it counts as a "strategic disinvestment" even though the buyer was another CPSE [3].
• 1991-92: the target was Rs 2,500 crore and about Rs 3,040 crore was realised in total. The amount above the target was only about Rs 540 crore.
• NCERT Ratna examples: Maharatna — IOCL and SAIL. Miniratna — BSNL and Airports Authority of India.

Mains Points

• Efficiency vs equity:
• Private ownership brings capital, technology and discipline, and the Survey found better performance after disinvestment [9].

• But undervaluation and sales of profitable PSUs raise questions of public accountability (GS-III: mobilisation of resources, industrial policy).

• Fiscal use of the money:

• When one-time asset sales pay for routine spending, the government is selling the "family silver".

• Linking the money to the NIF, capital spending and social sectors [2][5] is the better practice.

• Targets vs reality:

• Targets were missed again and again, for example 16% in 2020-21 and 48% in 2019-20 [3].

• This makes budget planning unreliable. It argues for realistic targets and more reliance on dividends and asset monetisation [7].

• Strategic retreat of the state:

• The New PSE Policy (2021) marks a move from "commanding heights" to a bare minimum presence [2].
• Compare it with the Ratna autonomy route, which reforms firms without selling them, and with the scholarly critique that Ratna firms were partly sold before they could become global players.