The proposal, according to official sources, will be placed before the Cabinet Committee on Disinvestment (CCD) on Friday, for consideration and action.

The DoD, it may be mentioned, is deviating from the recommendations of the former Disinvestment Commission, which had suggested offloading 10 per cent equity through a GDR issue.

According to the DoD proposal, the MTNL divestment will be in two phases. In the first phase, the government will offload 15 per cent equity in the company, in favour of a strategic partner, when the government stake would come down to 41 per cent from 56 per cent.

After selling 15 per cent shares to the strategic partner, the government would offload another 15 per cent to MTNL employees, small investors and financial institutions (FIs), sources said. While the employees and small investors will get the shares at a discounted price, FIs will get them at the normal price.

The strategic sale of MTNL is in tune with the current policy, which is against selling minority stakes in PSUs. The government feels that the sale of minority stakes does not change the public perception of the company.

There is no increase in share value, even though the exercise brings in some money to the exchequer.

The DoD argues that privatisation will bring in professionalism in MTNL, helping it survive in an increasingly competitive market. Privatisation is expected to strengthen the company by means of financial muscle, marketing acumen and operational efficiency.

In its proposal, the department says that global advisers will be appointed to select the strategic partner through competitive bidding.

The Disinvestment Commission had found MTNL to be a "strong performer" and recommended "full autonomy to the board of directors to enable it to conduct its operations successfully in the increasingly competitive environment." It had suggested representation to the holders offloaded equity. There were also recommendations regarding corporate governance, tariff fixation and choice of appropriate technology.

The DoD apparently wants to take a step beyond this - It wants the government to be out of MTNL.

The DoD has also been making efforts to initiate the sell-off process in Maruti Udyog Ltd (MUL), which would be another big-ticket divestment, provided it happens. Minister of heavy industries & public enterprises Manohar Joshi has given his nod for setting up a three-member committee under the chairmanship of cabinet secretary TR Prasad.