Mechanism for Strategic Disinvestment Approved

The Cabinet Committee on Economic Affairs, chaired by the Prime Minister has approved the proposal of Department of Investment and public Asset Management (DIPAM) for the strategic disinvestment of the following:

(i) For setting up an Alternative Mechanism (AM) consisting of the Finance Minister, Minister for Road Transport & Highways and Minister of Administrative Department, to decide on the matters relating to terms and conditions of the sale from the stage of inviting of Express of Interests (Eols) till inviting of financial bid; and

(ii) For empowering the Core Group of Secretaries (CGD) to take policy decisions with regard to procedural issues and to consider deviations as necessary from time to time for effective implementation of decisions of CCEA.

The approval will help in speedy completion of strategic disinvestment transactions.

Under strategic sale method, the government sells a major portion (51 percent and above) of its stake to a strategic buyer and also gives over the management control. Disinvestment price will be market based and not prefixed and PSUs shares will be under the department of Disinvestment.

Under the strategic sale, the Strategic Partner, after the transaction, may hold less percentage of shares than the Government but the control of management would be with him.

The Finance Ministry has empowered the NITI Ayog to advise the Government on strategic disinvestment of CPSEs. It will identify the CPSEs for strategic disinvestment. It will advise the government on mode of sale and percentage of shares to be sold; and suggest methods for valuation of the CPSE. NITI Ayog has to initiate the process of strategic disinvestment of CPSEs.

The budget 2016 has given power to the NITI to identify public sector companies for strategic sale.

After the NITI Ayog’s suggestions, Department of Investment and Public Asset Management (DIPAM) is finalizing a model for strategic sale of shares of PSEs.

Earlier the government has approved the proposal of DIPAM for laying down the procedure and mechanism for strategic disinvestment of Central Public Sector Enterprises (CPSEs). Hence, the procedure for strategic sale will be prepared by DIPAM.

DIPAM is the nodal agency of Union Finance Ministry mandated to advise the Union Government in the matters of financial restructuring of PSUs and also for attracting investment through capital markets. It will also deal with all matters relating to sale of Union Government’s equity in PSUs through private placement or offer for sale or any other mode in the erstwhile Central PSUs.

The NITI has prepared a report on CPSEs and suggested 32 PSUs for strategic sale including CPSEs. It has also suggested the winding up of 26 CPSEs out of the total 74.

For 2017-18, the Centre’s disinvestment target has been pegged at ₹72,500 crore, of which, about ₹42,500 crore is envisaged from minority stake sale and exchange traded funds. So far this fiscal, the Centre has raised ₹9,300 crore.

To help achieve the disinvestment target for the current fiscal, the Centre proposes to launch a second exchange traded fund (ETF) known as Bharat-22.