Concept of Disinvestment

Disinvestment is the action of an organization or government selling or liquidating an asset or subsidiary. It is a process in which the public undertaking reduces its portion in equity by disposing its shareholding. The disinvestment reduces government participation in the company.

Modes of Disinvestment

  1. Initial Public Offering (IPO) – offer of shares by an unlisted Central Public Sector Enterprise (CPSE) or the Government out of its shareholding or a combination of both to the public for subscription for the first time.
  2. Further Public Offering (FPO) – offer of shares by a listed CPSE or the Government out of its shareholding or a combination of both to the public for subscription.
  3. Offer for sale (OFS) of shares by Promoters through Stock Exchange mechanism – methodallows auction of shares on the platform provided by the Stock Exchange; extensively used by the Government since 2012.
  4. Strategic sale - sale of substantial portion of the Government shareholding 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.
  5. Institutional Placement Programme (IPP) – only Institutions can participate in the offering.
  6. CPSE Exchange Traded Fund (ETF) – Disinvestment through ETF route allows simultaneous sale of GoI’s stakein various CPSEs across diverse sectors through single offering. It provides a mechanism for the GoI to monetize its shareholding in those CPSEs which form part of the ETF basket.

Objectives of Disinvestment

Main objectives of disinvestment were outlined as:

  • To reduce the financial burden on the Government
  • To improve public finances
  • To introduce, competition and market discipline
  • To fund growth
  • To encourage wider share of ownership
  • To depoliticize non-essential services

Related Content