Model Answer
0 min readIntroduction
Disinvestment, or the sale of equity stakes in Public Sector Enterprises (PSEs) by the government, has been a cornerstone of India’s economic reforms since 1991. The Action Plan for Disinvestment, 2009, formulated in the aftermath of the global financial crisis, aimed to bolster government revenues, improve PSE efficiency, and broaden capital markets. This plan represented a renewed push towards disinvestment, building upon earlier attempts and adapting to the evolving economic landscape. It sought to achieve these objectives through a strategic and phased approach, focusing on specific sectors and employing diverse methods of stake sale.
Salient Features of the Action Plan for Disinvestment, 2009
The Action Plan for Disinvestment, 2009, outlined a comprehensive strategy for reducing government ownership in PSEs. Key features included:
1. Disinvestment Targets and Revenue Generation
- The plan aimed to raise approximately ₹1.1 lakh crore (as per knowledge cutoff 2024, this figure is significantly lower in real terms due to inflation) through disinvestment over the remaining period of the Eleventh Five Year Plan (2007-2012).
- It proposed to disinvest in a minimum of 5-10 PSEs each year.
- The revenue generated was intended to fund social sector schemes and reduce the fiscal deficit.
2. Sectoral Focus
- The plan prioritized disinvestment in sectors where the government considered its presence non-essential, such as hotels, airlines, and certain manufacturing units.
- Strategic sectors like oil & gas, power, and banking were to be approached with caution, focusing on offloading minority stakes to ensure continued government control.
- Emphasis was placed on disinvestment in ‘Navratna’ and ‘Miniratna’ companies – those with greater autonomy and financial performance.
3. Methods of Disinvestment
- Initial Public Offerings (IPOs): Listing previously unlisted PSEs on stock exchanges.
- Follow-on Public Offerings (FPOs): Selling additional shares of already listed PSEs.
- Strategic Sale: Transferring control of a PSE to a private sector buyer. This method was used selectively, particularly for loss-making or inefficient units.
- Exchange Traded Funds (ETFs): Creating ETFs comprising shares of various PSEs to offer diversified investment opportunities. CPSE ETF was launched in 2014, building on this concept.
4. Institutional Mechanisms
- Department of Disinvestment (DoD): The DoD, under the Ministry of Finance, was the nodal agency responsible for implementing the disinvestment program.
- Cabinet Committee on Disinvestment (CCD): The CCD, headed by the Prime Minister, provided overall guidance and approval for major disinvestment decisions.
- Advisors and Merchant Bankers: The DoD appointed legal and financial advisors to assist in the disinvestment process, including valuation, due diligence, and marketing of shares.
5. Addressing Concerns & Improving Efficiency
- The plan emphasized the need to address labor concerns and provide social safety nets for employees affected by disinvestment.
- It also aimed to improve the corporate governance and operational efficiency of PSEs prior to disinvestment, making them more attractive to investors.
The plan also included provisions for employee stock options and reservation of shares for employees to foster a sense of ownership and participation.
Conclusion
The Action Plan for Disinvestment, 2009, represented a significant attempt to accelerate the pace of disinvestment in India. While it faced challenges in achieving its ambitious revenue targets, it laid the groundwork for subsequent disinvestment initiatives. The plan’s emphasis on diverse methods, sectoral prioritization, and institutional strengthening contributed to a more structured and transparent approach to privatization. However, factors like market conditions and political considerations often influenced the actual implementation of the plan, highlighting the complexities inherent in disinvestment policy.
Answer Length
This is a comprehensive model answer for learning purposes and may exceed the word limit. In the exam, always adhere to the prescribed word count.