Written by Talent KAS

Related Topic in KAS Prelims Syllabus:

Economy and Planning [Paper-II]: Indian economy in post reform period – new economic reforms


  • Central Government gave in-principle approval for strategic disinvestment of the government shareholding in five public sector enterprises along with management control.
  • These five PSUs are Bharat Petroleum Corporation Ltd (BPCL); Shipping Corporation of India; Container Corporation of India; Tehri Hydro Power Development Corporation (THDCIL), and North Eastern Electric Power Corporation Ltd (NEEPCO).

Why do governments divest stake in PSUs?

  • According to some economists, “the government has no business being in business”.
  • It means that the government’s role is to facilitate a healthy business environment and the core competence of a government does not lie in selling fuel or steel at a profit.
  • With governments always having to spend more than they earn through taxes and other means, additional income from the proceeds of a stake sale is always welcome.
  • In the case of India, the government has to spend higher amounts on infrastructure to boost economic growth, along with its commitments on health and education.

What is strategic disinvestment?

  • A strategic sale by a government is one where the management control is ceded to the buyer.
  • Strategic disinvestment would imply the sale of substantial portion of the Government share holding of a central public sector enterprise (CPSE) of upto 50%, or such higher percentage as the competent authority may determine, along with transfer of management control.
  • It is guided by the basic economic principle that the Government should discontinue its engagement in manufacturing/producing goods and services in sectors where the competitive markets have come of age, and such entities would most likely perform better in the private hands due to various factors.


  • The resources unlocked by the strategic disinvestment would be used to finance the social sector/developmental programmes of the Government benefiting the public.
  • The unlocked resources would form part of the budget and the usage would come to scrutiny of the public.
  • It is expected that the the strategic buyer/ acquier may bring in new management/technology/investment for the growth of these companies and may use innovative methods for their development.


  • Since liberalisation began in India in 1991 under the then Prime Minister P.V. Narasimha Rao, the country saw a steady flow of disinvestment decisions.
  • However, privatisation, where buyers took over management control, began later.
  • Arun Shourie, the country’s first Disinvestment Minister is credited with the privatisation of Maruti, Bharat Aluminium Company Ltd., Videsh Sanchar Nigam Limited and Hindustan Zinc through the strategic sale process.
  • In 2015, Union Government reinitiated the policy of strategic disinvestment in order to open up sectors for private enterprise to bring efficiency in management that would contribute to general economic development.
  • In her budget speech of 2019, Union Finance Minister had announced that in view of current macroeconomic parameters, more CPSEs will be offered for strategic disinvestment.

[Source: The Hindu, Economic Times, All India Radio]

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Talent KAS

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