for Ministry of Disinvestment | Date - 07-02-2004

The process of disinvestment of Government shareholding in Public Sector Undertakings was initiated in 1991. However, from 1991 to 1999, the Government had primarily sold minority shares in Public Sector Undertakings. The disinvestment process, however, was accelerated after the Department of Disinvestment was set up on December 10, 1999, with the responsibility to deal with all matters relating to disinvestment of Central Government equity in Central Public Sector Undertakings. With the setting up of the Department of Disinvestment the Strategic Sale of Public Sector Enterprises with transfer of management control commenced. The Department of Disinvestment was subsequently made into the full-fledged Ministry of Disinvestment.

Disinvestment Commission has been reconstituted on July 24, 2001, to give a suitable thrust to the programme of disinvestment.

From the year 1992 to 1999, much of the disinvestment was in the form of sale of minority stake in profit making-enterprises. The price realised through the sale of minority stakes, even in blue chip companies such as Indian Oil Corporation, Bharat Petroleum Corporation Ltd. and Videsh Sanchar Nigam Ltd. was low as indicated by the price to earning ratios as compared to price realised through strategic disinvestment. During the period of five years (1998-2004), (upto December, 2003) disinvestment proceeds (including dividend, dividend tax and transfer of cash from reserves) have provided more than Rs.19,384 crore to the exchequer, as indicated in the table below:-

Rs. In crore



Proceeds from disinvestment
















2003-2004 (upto Dec.03)






During the year 1998-2000, minority shares of Container Corporation of India and GAIL were disinvested in the domestic market. Minority shares of VSNL and GAIL were also sold in the international market through GDR issues. During this period in order to have synergy, the oil sector PSUs, viz., IOC, GAIL and ONGC cross-purchased about 10 per cent shares of each of them among themselves.

Disinvestment through Strategic Sale commenced only in 1999-2000, and there have been only 12 cases of disinvestment of Public Sector Undertakings (PSUs) and hotel properties of 2 PSUs through this route, which involves transfer of management control to a Strategic Partner. These PSUs are Modern Foods Industries (India) Ltd. (MFIL), Bharat Aluminium Company Ltd. (BALCO), CMC Ltd., HTL Ltd., Lagan Jute Machinery Corporation Ltd. (LJMC), IBP Ltd., Videsh Sanchar Nigam Ltd. (VSNL), Paradeep Phosphates Ltd. (PPL), Hindustan Zinc Ltd. (HZL), Indian Petrochemicals Corporation Ltd. (IPCL), Maruti Udyog Ltd. (MUL) and Jessop & Co. Ltd. and 19 hotel properties of India Tourism Development Corporation Ltd. (ITDC) and 3 hotel properties of Hotel Corporation of India Ltd. (HCI).

The IPO of Maruti Udyog Ltd. (MUL) in the month of June, 2003, witnessed on overwhelming response from institutional and retail investors. The issue was oversubscribed by about 10 times and the Government realised about Rs.993.34 crore.

Though, disinvestment of Government holding in PSUs through Strategic Sale continues to be the corner stone of the disinvestment programme, it has been widened to include a range of strategies including Offer for Sale keeping in view the specific requirements of each case and prevailing market conditions. The Government has also decided to dispose off the residual shares through the Offer for Sale route in respect of five PSUs, viz. CMC Ltd., VSNL, IBP Ltd., IPCL and BALCO, which were already disinvested in consultation with the Strategic partners. On December23, 2003, the Government has decided to disinvest upto 10 per cent of its equity in ONGC and GAIL through domestic offer.

Out of the 12 PSUs disinvested so far, 4 PSUs were loss-making and both ITDC and Hotel Corporation of India in which strategic sale has been completed were also loss-making. By selling loss making companies and those companies which are under reference to the Board of Industrial and Financial Reconstruction (BIFR) like Paradeep Phosphates Ltd. (PPL), some hotels of ITDC/HCI etc. the Government saved the amount it would have had to pay in rehabilitation packages, which will now be provided by strategic investor, as required.

Benefits to small investors

The small investor is expected to gain from the off loading both of the GOI equity in PSUs and its residual holdings in disinvested PSUs, in the open market. .

Benefits to employees

In most of the companies disinvested, employees have gained by way of raises in pay and allowances, which will lead to growth in their buying power and therefore growth in the region. For example –

Wages have been significantly increased in Modern Food Industries Limited.

Employees of Paradeep Phosphates Ltd. (PPL) were agitating for wage revision at the time of accepting bids as wage revision due w.e.f. 1997 had not been effected due to the health of the company.

The new management has implemented the revised wages w.e.f. March, 2002.

In BALCO, wages had not been increased after April 1, 1999, even though a revision was due. In spite of loss of about Rs.200 crore due to the strike at the time of disinvestment, an ex-gratia payment of Rs.5,000 was paid to all employees and a long term wage agreement for a period of five years entered into by the Management with the employees on October 7, 2001, which guaranteed benefit of 20 per cent of basic pay to each employee, besides increase in a number of allowances.

After strategic sale of VSNL, CMC Ltd. and Hindustan Zinc Ltd., shares of these companies were also disinvested in favour of the employees of the companies on concessional rates.

Improvements in operational efficiency of disinvested PSUs

One of the primary objectives of disinvestment, especially through Strategic Sale route, is that with the transfer of management control into private hands, private capital and management practices would be used effectively to increase the operational efficiency of the company with its attendant spill over benefits for the Indian economy. On the basis of information provided by disinvested PSUs, there has been an improvement in efficiencies post disinvestment. A few examples are given below:

Modern Food Industries (India) Ltd. (MFIL): MFIL was a loss making PSU prior to disinvestment. The Strategic Partner has brought in funds for financial restructuring of the company so as to bring the company out of BIFR. There has been a growth in sales of over 20 per cent since disinvestment. The Profit Before Interest and Tax (PBIT) is expected to be positive by the end of the current year. The company has reportedly spent around Rs.12 crore on safety, quality control, modernisation and computerisation.

CMC: CMC has seen an expansion in sales and substantial increase in profitability post disinvestment.

Hindustan Zinc Ltd. (HZL): The Company has invested Rs.51 crore for a Thirty MW Captive Power Plant commissioned in March, 2003. Sales, in the year ending March, 2003, were 16 per cent higher than in the previous year.

IBP: Sales have increased and the company continues to be profitable.

Indian Petrochemicals Corporation Ltd. (IPCL): Sales have increased by 6 per cent post disinvestment while profitability has increased by more than 90 per cent from Rs. 107 crore in the year ending March, 2002, to Rs.204 crore in the year ending March, 2003.

Paradeep Phosphates Ltd. (PPL): This was a loss making company prior to disinvestment. Sales have increased post disinvestment and the level of loss made by the company has declined from a level of around Rs.12 crore per month prior to disinvestment to a level of around Rs.5-6 crore per month post disinvestment.

Other Initiatives: On December 9, 2002, Minister of Disinvestment announced certain policy decisions, in a suo-motu statement on "Disinvestment Policy and Approach" laid in both Houses of Parliament. Some of the salient features are given below:

The main objective of disinvestment is to put national resources and assets to optimal use and in particular to unleash the productive potential inherent in our public sector enterprises.

Government will ensure that disinvestment does not result in private monopolies.

Government would set up a Disinvestment Proceeds Fund.

Ministry of Finance and Ministry of Disinvestment will work out guidelines for disinvestment of natural assets companies.

The Government is working on the proposal of setting up of a Disinvestment Proceeds Fund and issue of guidelines on disinvestment of Natural Resources Companies. Government is also working on the setting up of Asset Management Company and in laying down guidelines for financial restructuring of loss making PSUs prior to disnvestment.

The Government, to facilitate participation of employees, issued in April, 2003, guidelines for management-employee bids in Strategic Sale.

Disinvestment Process

The Ministry of Disinvestment has laid down guidelines for qualification of merchant bankers etc. for appointment as Advisor and for bidders seeking to acquire stakes in Public Sector Enterprises through the process of disinvestment. The prospective Advisors and Bidders have to give undertaking at the stage of submission of EOI that they are eligible as per the criteria fixed by the said guidelines and that they have not been facing proceedings by any Regulatory Authority against any "Grave Offence" or "fraud" or have not been convicted by any Court of law. The Government appoints professional Advisor, Asset Valuer and Legal Advisors through a process of competitive bidding to assist Government in the process of disinvestment through strategic sale. All decisions are taken in Inter-Ministerial fora initially by Inter-Ministerial Group, then by Core Group of secretaries on Disinvestment followed by Cabinet Committee on Disinvestment. The procedure followed is transparent and has withstood the test of time. The Hon’ble Supreme Court in its Judgement in Balco case on December 10, 2001, while validating BALCO disinvestment and dismissing the petitions, remarked "Thus, apart from the fact that the policy of disinvestment cannot be questioned as such, the facts herein show that fair, just and equitable procedure has been followed in carrying out this disinvestment."

The Supreme Court in its judgement on September 16, 2003, on the Writ Petitions challenging the decision of the Government in the disinvestment of Hindustan Petroleum Corporation Ltd. (HPCL) and Bharat Petroleum Corporation Ltd. (BPCL) has restrained the Government from proceeding with disinvestment resulting in HPCL and BPCL ceasing to be Government companies without appropriately amending the statutes concerned. Various options are under consideration of the Government to meet the legal issues arising out of this judgement.

(Release ID :999)

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