Essay on the Indian Government Policy towards Disinvestment in CPSEs?



The policy on 'Disinvestment in CPSEs' has evolved over the years. Disinvestment of Government equity in CPSEs began in 1991-92.

The current policy on disinvestment emanate from the President's Address to the Joint Session of both the Houses of Parliament (4.6.2009) where it was stated, as under:

Our fellow citizens have every right to own part of the shares of public sector companies while the Government retains majority shareholding and control.

My Government will develop a roadmap for listing and people-ownership of public sector undertakings while ensuring that Government equity does not fall below 51 %'. The Honourable Finance Minister in his Budget Speech (6.7.2009), furthermore, an­nounced, as under:

"Public Sector Undertakings (PSUs) are the wealth of the nation, and part of this wealth should rest in the hands of the people. While retaining at least 51 per cent Government equity in our enterprises, I propose to encourage people's participation in our disinvestment programme.

Here, I must state clearly that public sector enterprises, such as, banks and insurance companies will remain in the public sector and will be given all support, including capital infusion, to grow and remain competitive'.

The Department of Disinvestment, Ministry of Finance, in consultation with Ministries/Depart­ments will accordingly identify cases for disinvestment in select CPSEs.

The focus will first be on profitable CPSEs that are listed with less than 10% public shareholding (and make them compliant through Follow-on Public Offerings). Profitable unlisted companies will be also listed on stock ex­changes through Offer-for-Sale or through Issue of Fresh Equity by the companies or both in con­junction.

Revival of sick PSE s

The condition of sick CPSEs (i.e., CPSEs whose accumulated losses have exceeded their net worth) has been improving over the years. The number of sick CPSEs, which was 105 in March 2003, came down to 54 in March 2009. The CPSEs were brought under the purview of Sick Industrial Compa­nies (Special Provision) Act, 1985 (SICA) which was subsequently amended in 1991 and made effec­tive from 1992.

Out of the 65 CPSEs registered with Board for Industrial and Financial Reconstruction (BIFR) till 30.6.2009, the BIFR has already disposed off 48 cases of CPSEs either through sanctioning revival schemes (11 cases), or recommending winding up (21 cases) or declaring 'no longer sick' (3 cases) or dropping due to net worth becoming positive (5 cases) or dismissing the cases as non- maintainable (4 cases).

The BIFR is yet to take any view on 17 cases of CPSEs. The Government set up the Board for Reconstruction of Public Sector Enterprises (BRPSE) in December, 2004 to advise the Government, inter alia, on the measures to restructure/revive, both industrial and non-industrial CPSEs.

For the purpose of making reference to BRPSE, a company is considered 'sick' if it has accumulated losses in any financial year equal to 50% or more of its average net worth during 4 years immediately preceding such financial year, and/or a company which is a sick company within the meaning of Sick Industrial Companies (Special Provisions) Act, 1985 (SICA). The concerned administrative Ministries/ Departments are required to send proposals of their CPSEs identified as 'sick' for consideration of BRPSE.

The Board is expected to make its recommendations within 2 months of the date of receipt of the complete proposal from the administrative Ministry/Department. Loss making/sick CPSEs may also be considered by the Board, , if it is of the opinion that revival/ restructuring is necessary for checking the incipient sickness (incurring loss for two consecutive years) in the enterprise.

As per the definition of sick CPSEs and the performance evaluation of CPSEs for 2007- 08 and previous years, there were 78 CPSEs referable to BRPSE as on 31.03.2008. Up to September 2009, cases of 64 sick CPSEs have been referred to BRPSE, out of which the Board has made recommendations in respect of 58 cases.

Out of these 58 cases as on 30.9.2009, the Government has approved revival proposals in respect of 36 cases of CPSEs and winding up of two enterprises. Out of the 36 cases of revival approved by the Government till September, 2009, 15 were approved during 2005-06, 11 cases were approved during 2006-07, 6 cases were approved during 2007-08, 4 cases were approved during 2008-09, and 2 cases were approved during 2009-10 (upto September, 2009).