Reforms and Disinvestment in PSU Sector
🧨 Reforms in the 1991 Industrial Policy – A Turning Point
Let’s start with a historical landmark—the New Industrial Policy of July 24, 1991, which formally acknowledged that the public sector had become bloated, inefficient, and fiscally burdensome.
🔑 Key Reforms Introduced:
✅ Reduction in Reserved Areas
- Earlier, 17 industries were reserved exclusively for PSUs.
- This list was reduced to 6, covering strategic domains like:
- Defense, Atomic Energy, Railways
- Petroleum, Coal, Atomic Minerals
- Even these opened up to private participation and FDI on a case-by-case basis.
✅ Revival or Closure of Sick PSUs
- Sick units were referred to BIFR (Board for Industrial & Financial Reconstruction).
- Options included revival, restructuring, or closure—especially where revival was not viable.
✅ Greater Autonomy to PSUs
- Introduction of MoU system: agreement between PSU and the government with clear performance metrics.
- Boards were to include professional managers and independent directors.
✅ Introduction of Disinvestment
- For the first time, the policy talked of divesting equity in non-strategic PSUs, to:
- Raise resources
- Improve efficiency
- Expose PSUs to market competition
🔄 Follow-Up Reforms (1990s–2010s)
After 1991, multiple reforms built on this foundation:
🔓 De-reservation of Sectors
- By 1993, most industries like iron ore, non-ferrous metals were opened up.
- As per the 2021 policy, only 4 strategic sectors remain under partial public control.
🛠 Sick PSUs and BIFR
- Under SICA, many units were:
- Merged
- Privatised
- Closed
- Popular mechanisms included Voluntary Retirement Schemes (VRS) and asset sales.
🧺National Renewal Fund (1992)
- Provided compensation, re-skilling, and employment support to displaced PSU workers.
- Faced funding issues and eventually discontinued.
📉 Major Disinvestment and Strategic Sale Initiatives (2000–2025)
A. Early 2000s – Strategic Sales Begin
- Recommended by Disinvestment Commission (1996)
- Early strategic disinvestments:
- BALCO → Sterlite (Vedanta)
- Modern Foods → Hindustan Unilever
- VSNL → Tata Group
B. Post-2016–2025: Aggressive Disinvestment Phase
- Air India sold to Tata Group (2021–22)
- Neelachal Ispat Nigam Ltd → Tata Steel
- LIC IPO in 2022—India’s biggest ever public offering
- Merger of PSBs: Reduced from 27 (2017) to 12 (2020)
- Privatization Policy (2021): Only 4 strategic sectors retained; all others open to privatization
🧰 Autonomy and Governance Reforms
To make PSUs more competitive and transparent:
A. Classification into Maharatna, Navratna, Miniratna
- Grants financial autonomy based on performance and size
B. Board-Level Reforms
- Induction of independent directors
- Separation of Chairman and CEO roles
C. Performance Monitoring
- Use of KPIs under the MoU framework
- Annual review by Department of Public Enterprises (DPE)
D. Digitalization and Modernization
- Use of GeM portal, e-tendering, ERP
- Investment in green hydrogen, Industry 4.0, renewables
💸 Understanding Disinvestment: Concept and Evolution
📖 What is Disinvestment?
It refers to selling the government’s equity stake in PSUs to:
- Private players
- Financial institutions
- Public investors
- Strategic buyers
🎯 Objectives:
- Reduce fiscal burden
- Improve PSU efficiency
- Unlock value and capital
- Promote wider public ownership
🔁 Evolution of Disinvestment Policy:
| Phase | Years | Key Features |
|---|---|---|
| 1. Early Phase | 1991–2000 | Minority sales to LIC, UTI, etc. |
| 2. Strategic Sales | 2000–04 | Majority stake and control transferred |
| 3. Holding Pattern | 2004–14 | Slower sales; CPSE ETFs launched |
| 4. Aggressive Reform | 2016–present | Strategic privatization and IPOs |
🔍 Disinvestment Methods in India
➤ Minority Disinvestment
- Government stake stays >51%
- Control remains with government
- Via OFS, ETF, institutional placements
- 🔁 Examples: NTPC, Power Grid
➤ Strategic Disinvestment
- Govt stake falls below 50%
- Includes transfer of management control
- 🔁 Examples: BALCO, Air India
➤ Complete Privatization
- Govt stake becomes 0%
- Full ownership and control transferred
- 🔁 Examples: Air India, ITDC hotels
📊 Disinvestment vs. Privatisation
| Aspect | Disinvestment | Privatisation |
|---|---|---|
| Stake | Partial | Majority or Full |
| Control | Often with Govt | Always with Private Sector |
| Strategic Intent | Efficiency + Revenue | Ownership Transfer |
| Example | NTPC stake sale | Air India sold to Tata |
⚠️ Challenges & Criticisms of Disinvestment
- Fiscal Focus vs. Reform Focus
- Often used to plug budget deficits, not improve PSU health.
- Underpricing Allegations
- Assets sometimes sold below market value.
- Labour Resistance
- Fear of job losses and benefit cuts.
- Execution Delays
- Regulatory hurdles, legal issues delay big-ticket sales (e.g., BPCL).
- Valuation & Autonomy Issues
- PSU boards lack independence due to continued govt presence.
🛣️ Future Roadmap & Government Measures
🚀 Recent Moves
- 2021 PSE Policy: clear distinction between strategic and non-strategic sectors
- NITI Aayog tasked with identifying CPSEs for disinvestment
- Focus on fewer but bigger sales, with better execution
🎯 Vision Ahead
- Consolidate strong PSUs
- Privatize non-core enterprises
- Push PSUs into clean energy and digital transformation
- Promote global competitiveness and export orientation
✅ Final Summary: Strategic Shift in PSU Policy
The public sector in India is no longer a sacred cow. The new model is about:
- Strategic retention of key PSUs
- Professional management
- Market competition
- And public-private synergy
Disinvestment, when done transparently and efficiently, can transform legacy enterprises into global champions and free up capital for social development and infrastructure.
