Know about the new rules of government for strategic disinvestment, understand the difference between strategic disinvestment, disinvestment and pure privatization for UPSC CSE/IAS prelims and mains

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Username akashaky
on 16/10/2019

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Recently, the cabinet approves a new strategic disinvestment process in order to speed up its stake sale in PSU and other government companies. In this article, we will discuss the disinvestment and will also discuss this step of the government.

Disinvestment and strategic disinvestment 

  • Disinvestment is a process in which the government sells its stake of different PSUs and companies. It leads to the privatization of a particular PSU or company.
  • Note that if the stake of government in a particular company is below 51%, the company will be marked as privatized. In this case, the major control of the company is not in the hands of the government.
  • The government has decided strategic disinvestment in Bharat Petroleum Corporation Limited(BPCL), in Shipping Corporation of India(SCI), in Concor, in NEEPCO also in  THDC.
  • In strategic disinvestment, the government takes less than 51% of stakes so that the control of the company and management passes to the private shareholder.
  • In strategic disinvestment, the government gets a better price because the government gives control and management power to private stakeholders.

Disinvestment and full privatization

  • There are many important decisions in a company that need the approval of 3/4th( i.e 75%) of stakeholders.
  • So, disinvestment leads to the full privatization of a particular company only if the government has less than 26% of share in that company.

New Rules:

  • The new rules have been introduced in order to complete the process of stake sale within a particular timeframe.
  • Till now the in the strategic disinvestment was identified by Niti Aayog but from now the Department of Investment and Public Asset Management (DIAPM) and Niti Aayog will jointly identify for strategic disinvestment.
  • Now, the DIAPM under the Ministry of Finance is the nodal department for the strategic stake sale and the secretary of DIPAM will chair the inter-minister group on disinvestment.
  • The government will show its intention of disinvestment and then there will be a set of meetings that will be conducted with bidders in order to get the best price.
  • A data center will be established to provide information to the bidder about that particular PSUs.

Hope it helps.

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