A glimpse on disinvestment policy of GOI Rudra Singh UPSC PREPARATION Mon, Feb 07, 2022, at ,12:25 AM With the passing of the Constitution (First Amendment) Act, 1951, nationalisation of private firms became a standard policy tool by the Government. The Act stated that ‘the citizen’s right to practise any profession or to carry on any occupation, trade or business conferred by article 19(1)(g) is subject to reasonable restrictions which the laws of the State may impose “in the interests of general public”’. The Act allowed for nationalisation or trading by the state in any business.Soon under the Air Corporations Act, 1953, the Government nationalised nine airlines—Air India, Air Services of India, Airways (India), Bharat Airways, Deccan Airways, Himalayan Aviation, Indian National Airways, Kalinga Airlines, and Air India International—and brought them under two PSEs, Indian Airlines, and Air India International. This was followed by nationalisation of life insurance in 1956 through the Life Insurance Corporation Act 1956, whereby 154 Indian insurers, 16 non-Indian insurers, and 75 provident societies were nationalised into Life Insurance Corporation of India (LIC). Through the General Insurance Business (Nationalisation) Act, 1972, the general insurance business of 55 Indian companies and the 52 foreign insurers was nationalised. Further in the banking system, the government nationalised 14 banks in 1969 through the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970, followed up by a second round of bank nationalisation in 1980, through which another six banks were nationalised. Coal mines were also nationalised during the period 1971-1975. Nevertheless, the issue of nationalisation has always been a highly debated issue, to the extent that in the year 1958, the then Finance Minister, Mr. TT Krishnamachari, had to resign owing to controversies around nationalisation of LIC (Mundhra Scandal, 1958).After the 1991 reforms, there was a transition in thinking about public and private sector. The term ‘disinvestment’ was used first time in Interim Budget 1991. However, the policy on disinvestment gathered steam under the Government of PM Vajpayee, when a new Department of Disinvestment was created in 1999, which became a full Ministry in 2001. It was during this period that the concept of strategic sales of state-owned companies became a part of policy debate. This government stakes were sold in as many as 12 public sector companies during this tenure, including Maruti Udyog, Hindustan Zinc, Bharat Aluminum and Videsh Sanchar Nigam Limited. The process of disinvestment continued intermittently over the next decade 2004-2014, until the recent emphasis in this direction over last five years.After 2014After 2014, the disinvestment policy was renewed with stake sales in PSEs such as Hindustan Petroleum Corporation Limited (HPCL), Rural Electrification Corporation Limited (REC), Dredging Corporation of India Limited (DCIL), Hospital Services Consultancy Corporation Limited (HSCC), National Projects Construction Corporation Limited (NPCC), THDC India Limited and North Eastern Electric Power Corporation Limited; and successful listing of PSEs like IRCTC, HUDCO, Cochin Shipyard Ltd., General Insurance Corporation, New India Assurance Company Ltd., Mazagon Dock Shipbuilders Ltd. (MDL) and RailTel on the stock market. In order to realize the mission of New, Self-reliant India, there was a need to redefine public sector participation in business enterprises and to encourage private sector participation in all sectors.Against this backdrop, New Public Sector Enterprise (“PSE”) Policy for Atmanirbhar Bharat was notified on 4th February 2021. The policy intends to minimize the presence of the Government in the PSEs across all sectors of the economy. Under the New PSE Policy, public sector commercial enterprises have been classified as Strategic and Non-Strategic sectors. Following four broad strategic sectors have been delineated based on the criteria of national security, energy security, critical infrastructure, provision of financial services and availability of important minerals- (i) Atomic Energy, Space and Defense; (ii) Transport and Telecommunication; (iii) Power, Petroleum, Coal and other minerals; and (iv) Banking, Insurance and Financial Services.The B.E for disinvestment proceeds for the year 2021-22 was fixed at `1,75,000 crore. So far, Government has received ` 9,330 crores (as on 24 January 2022) from disinvestment of CPSEs through Offer for Sale (OFS) route and sale of shares through the stock exchange. CPSE stocks have gained traction among the investors, as reflected in the BSE CPSE index, which has risen by40.02 per cent since January 2021 to date (24 January 2022), in comparison to the benchmark index, which rose by 23.33 per cent. Total dividend receipts from CPSEs in 2020-21 stood at ` 39,607 crore, which exceeds the Revised Estimate (RE) of ` 34,717 crore, and is more than actual dividend receipts (` 35,543 crore) during the previous financial year. Total dividend receipts in the current financial year (as of 24.01.2022) stand at ` 40,201.47 crore.Since 2016, the government has given ‘in-principle’ approval for strategic disinvestment of 35 CPSEs and/or Subsidiaries/ Units/ Joint Ventures of CPSEs and IDBI Bank. During the present year, with progress on privatization of Air India, the government has crossed a significant milestone with M/s Talace Pvt Ltd, a wholly-owned subsidiary of M/s Tata Sons Pvt Ltd emerging as the successful bidder for sale of 100 per cent equity shareholding of GoI in Air India along with equity shareholding of Air India in AIXL and AISATS. Share Purchase Agreement was signed among M/s Talace Private Ltd, Air India and Ministry of Civil Aviation on 25.10.2021. This progress on privatization of Air India is particularly important, not only In terms of garnering disinvestment proceeds but also for boosting the privatisation drive.Asset Monetisation The National Infrastructure Pipeline (NIP) envisaged a projectd infrastructure investment of ` 111 lakh crores during FY 2020 to FY 2025. The NIP task force report has estimated that about 15-17 per cent of this outlay is to be met through innovative and alternative initiatives such as asset monetisation, funding through a new Development Finance Institution (DFI) etc2. The Union Budget 2021-22 also emphasized monetization of assets as one of the three pillars for enhanced and sustainable infrastructure financing in the country.Based on the mandate for Asset Monetisation under Union Budget 2021-22, the National Monetisation Pipeline (NMP) has been developed by NITI Aayog in consultation with infrastructure line ministries. It is envisaged to serve as an essential roadmap for the asset monetisation of various brownfield infrastructure assets across roads, railways, shipping, aviation, power, telecom, oil & gas, and warehousing sectors. The NMP will also form a baseline for the asset owning ministries for monitoring and tracking performance of the potential assets.The NMP estimates aggregate monetisation potential of ` 6.0 lakh crores through core assets of the Central Government, over a four-year period, from FY 2022 to FY 2025. The top 5 sectors which capture around 83 per cent of the aggregate pipeline value include: Roads (27 per cent) followed by Railways (25 per cent), Power (15 per cent), oil & gas pipelines (8 per cent) and Telecom (6 per cent). Around 15 per cent of assets with an indicative value of ` 0.88 lakh crore are envisaged to be rolled out in the current financial year (FY 2021-22).The assets and transactions identified under the NMP are expected to be rolled out through a range of instruments. These include direct contractual instruments such as public private partnership concessions and capital market instruments such as Infrastructure Investment Trusts (InvIT) among others. The choice of instrument will be determined by the sector, nature of asset, timing of transactions (including market considerations), target investor profile and the level of operational/ investment control envisaged to be retained by the asset owner etc.While the monetization of core assets is steered by NITI Aayog, the initiative for monetization of non- core assets has been hitherto steered by the Department of Investment and Public Asset Management (DIPAM). Monetization of non-core assets envisages unlocking of value of these thus far unutilized or underutilized assets and generate returns on the equity that the Government has invested in them. So far, CPSEs have referred ~3400 acres of land and other non-core assets to DIPAM/MoF for monetization. Monetization of non-core assets of different CPSEs i.e., MTNL, BSNL, BPCL, B&R, BEML, HMT Ltd, Instrumentation Ltd etc. is at present under various stages of the transaction.Since, at present, the desired skill set to take on the responsibility of management and monetization of non-core assets in Government is limited. Hon’ble Finance Minister in her Budget speech 2021-22 announced setting up of a Special Purpose Vehicle (SPV), with capacity and expertise, to carry out the monetization of the land and other non-core assets in an efficient and prudent manner, in line with international best practices. In pursuance of the Budget announcement, ‘National Land Monetisation Corporation’ (NLMC) is being incorporated as a 100 per cent Govt of India owned entity with an initial authorized share capital of ` 5000 crores and subscribed share capital of ₹ 150 crores.