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Data: The history of Disinvestment in India & Political Trends


During the Budget 2021-22 presentation, it was announced that two Public Sector Banks and one General Insurance Company would be privatized. Disinvestments have often been used by the governments as a means to shore up receipts and reduce the fiscal deficit. In this detailed data story about disinvestment since 1991-92, we look at the numbers as well as the political trends in disinvestment.

During the 2021-22 budget presentation in the Lok Sabha on 01 February 2021, the Finance Minister announced that two public sector banks and one general insurance company are expected to be disinvested this year. Disinvestment refers to the sale of shares of Public Sector Undertakings (PSUs) by the government. In this article, we briefly look at the history of disinvestment and determine the political trends of disinvestment in the country.

There are two major reasons offered by the government for disinvestment. One is to provide fiscal support and the other is to improve the efficiency of the enterprise. The fiscal support argument dictates that the government’s resources are limited, and these resources should be devoted to areas of social priority (such as health, family welfare, education, etc). More resources can be devoted to these priority areas by releasing resources locked up in non-strategic public sector enterprises. The second reason for disinvestment dictates that it will improve the efficiency of the enterprise. If the extent of disinvestment is such that a wider share of ownership is encouraged, it will introduce competition and market discipline.

There are primarily three different approaches to disinvestments:

  • Minority disinvestment: The government retains a majority stake (typically more than 51%) in the company and it ensures management control. Some examples of minority disinvestment via Offer for Sale include recent issues of Power Grid Corp. of India Ltd., Rural Electrification Corp. Ltd., NTPC Ltd, NHPC Ltd, etc.
  • Majority disinvestment: The government retains a minority stake in the company i.e., it sells off a majority stake. It is also called Strategic Disinvestment. These strategic partners could be other Central Public Sector Enterprises (CPSEs) themselves, a few examples being the sale of BRPL/MRL to Indian Oil Corporation Ltd. (IOC) and KRL to BPCL. Alternatively, these strategic partners can be private entities, like the sale of Modern Foods to Hindustan Lever Ltd., CMC to Tata Consultancy Services Ltd. (TCS).
  • Complete disinvestment or privatization: It is a form of majority disinvestment wherein 100% control of the company is passed on to a buyer i.e. government completely disinvests from that PSU. An example of this includes multiple hotel properties of India Tourism Development Corporation (ITDC).

Change in Government Policy regarding Disinvestment

In the Industrial Policy of 1956, 17 industries were reserved exclusively for the public sector and there were 12 other industries that were to be progressively state-owned. In 1991, there was a radical change in the government’s policy towards the public sector. The domestic economy, where PSUs had served as engines of growth, had started welcoming private players. After 1991, only eight industries were reserved for the public sector, including defence production, atomic energy, coal and lignite, mineral oils, iron ore, manganese, gold and diamond, atomic minerals, and railways.

The new policy for public sector disinvestment stated that the government will run the public sector on sound commercial principles. Chronically sick public sector units will be referred to Board for Industrial and Financial Re-construction (BIFR) for examining their viability. Another important feature of the new disinvestment policy was that 20% shares of selected profit-making public-sector units can be sold to financial institutions, mutual funds, etc. These institutions will hold the shares for a specified period of time after which they will be permitted to sell the shares in the share market.

In 1999, the government classified public sector enterprises into strategic and non-strategic units for the purpose of disinvestment. Strategic public sector enterprises would be those in the areas of defence production, atomic energy and railway transport. All other public sector enterprises were to be considered non-strategic.

The first milestone in the history of disinvestment of PSUs dates back to 1999. Prior to this, governments had pursued disinvestment but with considerable restraint, indulging mostly in minority stake sale of selected PSUs (as evident in the year-wise breakup of disinvestment outlined below). Atal Bihari Vajpayee’s term as Prime Minister, heading a National Democratic Alliance (NDA) Government between 1999 and 2004, is famously described as the golden period for privatisation of public sector undertakings (PSUs). In fact, in December 1999, under the NDA regime, a dedicated ministry and a separate cabinet committee on divestment were set up.

Let’s take a look at the disinvestment earnings of the government since 1991. The CAG’s 2017-18 audit report on the Union government accounts (No. 2 of 2019, released in February 2019) says “disinvestment constitutes a major portion of capital receipts” of the central government. Governments have raised more than Rs. 5 lakh crores so far (from 1991 till date) through disinvestments. The following graph captures the trend of disinvestment and the resultant earnings over the last three decades.

Below is a year-wise break-up of disinvestment and receipts, sourced from the data published by the Department of Investment & Public Asset ManagementDepartment of Public Enterprises, in form of Annual Year Books and Public Enterprises Survey Reports, and the BSEPSU.

Political Trends in Disinvestment

In order to understand the trend of disinvestment under various regimes, let’s take a look at the annual Central Public Sector Enterprises (CPSE) target vs Achievement since 1991-92.

While there is no significant difference in the disinvestment achievement rates under these two regimes, there is a huge difference in the average annual total receipts from disinvestment under the two regimes. As outlined in the graph, the BJP-led government’s average receipts from disinvestment are almost three times Congress-led government’s average receipts from disinvestment. The BJP-led government’s average annual receipt from disinvestment stands at ₹ 29,381 crores – more than threefold of Congress-led government’s average annual receipts from disinvestment at ₹ 8,274 crores.

The Hindu article dated 18 November 2018, which also analyses the data released by the Department of Investment and Public Asset Management (DIPAM) up to 8 November 2018 reiterates this observation. The article argues that the ‘total disinvestment’ done by BJP-led governments (up till 8 November 2018) was almost twice than that done by the Congress-led governments. It also highlighted the point that BJP-led governments account for 58% of all the disinvestment that has taken place since 1991.

Featured Image: Disinvestment in India


About Author

Aprajita is driven by her ardent interest in a wide array of unrelated subjects - from public policy to folk music to existential humour. As part of her interdisciplinary education, she has engaged with theoretical ideas as well as field-based practices. By working with government agencies and non-profit organisations on governance and community development projects, she has lived and learned in different parts of the country, and aspires to do the same for the rest of her life.

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