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India’s Disinvestment Policy
Context:
The government has frequently articulated that “the government has no business being in business,” but its actions, especially with regard to public sector enterprises (PSEs), suggest inconsistency in this stance.
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Recent moves, such as granting Navratna status to the Indian Railway Catering and Tourism Corporation (IRCTC) and the Indian Railway Finance Corporation (IRFC), highlight this ambiguity.
Navratna Status
- Navratna status is granted to public sector enterprises based on performance metrics like earnings per share, profit, net worth, and return on capital employed.
- This status gives PSEs more autonomy in decision-making, including:
- The ability to invest up to ₹1,000 crore or 15% of their net worth in a single project without government approval.
- Flexibility to form joint ventures, mergers, or acquisitions without bureaucratic constraints, enabling these companies to be more competitive and responsive to market conditions.
What Does This Mean for Indian Railways and Other PSEs?
- Indian Railways provides a key public service and holds substantial infrastructure, making its state ownership logical and justified. However, attempts to privatise train operations or bring in private players have met resistance, given that Indian Railways’ larger infrastructure dictates service quality.
- About Other PSEs: India’s disinvestment program has slowed significantly in the past five years. The government’s original goal of divesting its holdings in non-strategic sectors has faltered. For instance:
- In 2022-23, the government raised only ₹8,625 crore through stake sales—far from the ambitious targets set earlier.
- In the 2025-26 budget, the government has subsumed its disinvestment targets under “miscellaneous capital receipts”, without an explicit target for offloading equity.
India’s Disinvestment Policy: An Overview
- The Indian government’s policy on disinvestment is focused on two main areas: Strategic Disinvestment/Privatisation and Minority Stake Sales in CPSEs (Central Public Sector Enterprises).
- The policy aims to minimise the government’s role in the economy by reducing its involvement in non-strategic sectors, promoting efficiency, and strengthening capital markets.
Strategic Disinvestment / Privatisation
- Strategic Disinvestment: This refers to the sale of the government’s entire or substantial shareholding in a CPSE, along with the transfer of management control. The aim is to improve the performance of these enterprises by shifting ownership and management to private players who can run them more efficiently.
- Privatisation: A specific subset of strategic disinvestment, where the government equity and control of a CPSE are transferred to private strategic buyers. In cases where management control is not transferred, the sale of equity may go to another CPSE, or the enterprise may undergo merger or subsidiarization with another PSE.
Minority Stake Sale in CPSEs
- Minority stake sales refer to selling a portion of the government’s stake in a CPSE without transferring management control.
- This can be done through methods approved by the Securities and Exchange Board of India (SEBI), including: Initial Public Offerings (IPOs), Offer for Sale (OFS), Buyback of shares.
- The objectives of these minority stake sales are:
- Increasing the float (the number of shares available for public trading) of well-performing CPSEs.
- Providing opportunities for retail investors to participate in a broader range of stocks.
- Enhancing liquidity and depth in the capital market, making it more dynamic and efficient.
