Govt unveils disinvestment policy

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New Delhi: Prime Minister Manmohan Singh put UPA-II’s reform train back on track on Thursday. The government’s disinvestment policy announced on Thursday shies away from strategic sale of public sector units, but is the largest-ever plan to unlock the value of companies for investors, especially retail.

It also holds the promise of improving PSUs’ governance standards while raising resources to contain the Centre’s huge fiscal deficit. The stake sale proceeds, which could touch Rs 25,000 crore annually, will be used to fund the capital expenditure of social sector projects, though economists believe it is often difficult to distinguish government revenue spends from capex spends.

According to the policy cleared by the Cabinet Committee on Economic Affairs, all listed PSUs are required to plan further stake sales to ensure that the minimum public holding in these firms reaches 10%. More importantly—in a hark back to the days when Singh was Narasimha Rao’s finance minister—all profitable unlisted PSUs with a positive net worth will be required to list on stock exchanges.

Between 1991 and 1995, the Rao government had sold minority stakes of up to 20% in 39 firms. According to the latest department of public enterprises survey, 159 units showed profits in 2007-08.

“In line with the President’s address and finance minister’s Budget announcement, the government has decided that at least 10% of all profitable listed PSUs should be owned by the public. All unlisted PSUs with a positive net worth, no accumulated losses and net profits in the preceding three years should be listed,” home minister P Chidambaram said after the CCEA meeting.

Commenting on the move, Prime Minister's economic advisory council chairman C Rangarajan said the government’s decision to use disinvestment proceeds for capital expenditure would help create new capacities in the social sector. “Since capital expenditure is fairly well defined, I hope the money will go to the right projects and the building up of durable assets,” he said.

Ordinarily, stake sale proceeds would go to the National Investment Fund, where disinvestment ear-nings of Rs 2,000 crore are parked.

But given the tight fiscal situation, a special dispensation is being made for the three-year period 2009-12 so that the proceeds can be used for social sector projects.