FDI, FPI and Disinvestment

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Table of Contents
1.0 Foreign Direct Investment (FDI) ........................................................................................................... 2
1.1 What is FDI ...................................................................................................................................... 2
1.2 Classification of FDI ......................................................................................................................... 3
1.3 FDI Routes in India ........................................................................................................................... 4
1.3.1 FDI Categories ............................................................................................................. 5
1.4 How Governments Encourage FDI ................................................................................................... 7
2.0 Foreign Portfolio Investment (FPI) ....................................................................................................... 8
2.1 What is FPI?..................................................................................................................................... 8
2.2 Difference between FDI and FPI ....................................................................................................... 9
2.3 FPI in India ....................................................................................................................................... 9
2.4 Categories of FPI.............................................................................................................................. 9
2.5 Voluntary Retention Route (VRR) for Investment by FPIs................................................................ 10
3.0 Disinvestment ................................................................................................................................... 11
3.1 What is a Public Sector Undertaking (PSU)? ................................................................................... 11
3.2 What is Disinvestment? ................................................................................................................. 12
3.3 Approaches to Disinvestment ........................................................................................................ 12
3.4 Difference between Privatisation and Disinvestment ..................................................................... 13
3.5 What is Strategic Disinvestment? ................................................................................................... 13
3.6 Objectives of Disinvestment .......................................................................................................... 14
3.7 Methods of Disinvestment ............................................................................................................. 14
3.7.1 Disinvestment through ETF ........................................................................................ 15
3.8 Department of Investment and Public Asset Management (DIPAM) ............................................... 15
3.8.1 Vision and Mission of DIPAM ..................................................................................... 16
3.8.2 Functions of DIPAM ................................................................................................... 16
3.8.3 Mandate of DIPAM: .................................................................................................... 17
3.8.4 National Investment Fund .......................................................................................... 17
3.9 Disinvestment in India ................................................................................................................... 18

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1.0 Foreign Direct Investment (FDI)

1.1 What is FDI
• A foreign direct investment (FDI) is an investment in the form of a controlling ownership in a
business in one country by an entity based in another country.
• Generally, the term is used to describe a business decision to acquire a substantial stake in a foreign
business or to buy it outright in order to expand operations to a new region.
• Companies can make an FDI in several ways, including purchasing the assets of a foreign company;
investing in the company or in new property, plants, or equipment; or participating in a joint
venture with a foreign company, which typically involves an investment of capital or know-how.
• Companies usually expect to benefit through access to local markets and resources, often in
exchange for expertise, technical know-how, and capital.

• According to RBI,
• FDI refers to the investment made through equity instruments by a person resident outside India
o in an unlisted Indian company; or
o in 10% or more of the post issue paid-up equity capital on a fully diluted basis of a listed
Indian company.

• A country’s FDI can be both inward and outward.

▪ Inward FDI refers to investments coming into the country.
▪ Outward FDI are investments made by a domestic company into foreign companies in other
countries.
• The difference between inward FDI and outward FDI is called the net FDI inflow, which can be either
positive or negative.

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1.2 Classification of FDI

FDI Classification

Nature of Business
Asset Based View Motive Based View
Activity

Greenfield Resource
Horizontal FDI
Investment Seeking FDI

Brownfield Market
Vertical FDI
Investment Seeking FDI

Conglomerate Efficiency
FDI seeking FDI

Asset-based View

• Greenfield Investment: A green field investment is a type of foreign direct investment (FDI) where a
parent company creates a subsidiary in a different country, building its operations from the ground
up.

• Brownfield Investment: Brownfield investments, on the other hand, occur when an entity purchases
or leases an existing facility to begin new production.

Nature of Business Activity

• Horizontal FDI: It is the investment activities undertaken by a foreign firm in similar production
activity as it is carried out in its home country. In other words, it signifies that an MNC assumes the
same production process in two or more countries.

• Vertical FDI: Under this, a firm assumes investment activities overseas, with the intention of
supplying raw materials required for its domestic production, or to sell its domestically produced
final products in a foreign country.

• Conglomerate FDI: Direct investment overseas aimed at manufacturing or selling products not
manufactured/ sold by the firm in the home country is termed as Conglomerate FDI.

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Motive-based View

• Resource-seeking Investment: Resource-seeking investment is one of the types of foreign direct

investment; it mainly focuses on companies going international for rich raw materials, low-cost
unskilled and skilled labour, technological assets, and physical infrastructure.

• Market-seeking Investment: Firms also invest in foreign markets to promote or exploit new
markets.

• Efficiency-seeking Investment: Efficiency seeking or cost reducing investment is undertaken by

MNCs to provide more favourable cost bases for their operations.

1.3 FDI Routes in India

• India opened up the economy in 1991 and ever since then, the government has been introducing
several FDI norms with the sole motive of attracting more and more investors to invest in domestic
businesses.
• FDI by an individual or a company based outside the country is regulated through two routes – the
automatic route and the government route.

Automatic Route Government Route

Under this route, the overseas
investor or the Indian company
does not require a prior approval
from the Reserve Bank of India
(RBI) or Government of India for
investment into the country.
• The approval route is a little restricted. The
foreign investor or the Indian company has
to take a prior approval from the Reserve
Bank of India (RBI) or the Government of
India before making an investment.
• The Foreign Investment Facilitation Portal
(FIFP) facilitates the single window
clearance of applications which are
through approval route. It is administered
by the Department for Promotion of
Industry and Internal Trade (DPIIT),
Ministry of Commerce and Industry.

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1.3.1 FDI Categories

CATEGORY 1 CATEGORY 2 CATEGORY 3

100% Upto 100% Upto 100%
FDI permitted FDI permitted FDI permitted
through Automatic through Government through Government
Route Route + Automatic Route

S.no. Sector/Activity Sectoral Cap Entry Route

1. Agriculture and Animal Husbandry 100% Automatic
2. Plantation 100% Automatic
3. Mining 100% Automatic
4. Coal and lignite mining 100% Automatic
5. Petroleum and Natural Gas
Exploration & production, refining by 100% Automatic
the private companies, marketing of
petroleum products, pipelines,
storage and all related activities,
Petroleum refining by PSUs, without 49% Automatic
any disinvestment or dilution of
domestic equity in the existing PSUs
6. Manufacturing 100% Automatic
7. Defence 100% Automatic route up to
74%* has been
permitted. Beyond that
limit through
government route on
case to case basis,
wherever it is likely to
result in access to
modern and state-of-art
technology
*(Earlier 49; increased to
74% in 2020.)
8. Broadcasting
8.1 Teleports, DTH, Cable networks, 100% Automatic
Mobile TV, Headend-in-the-sky
Broadcasting Service (HITS), Cable
Networks
8.2 Broadcasting content services
8.2.1 Terrestrial Broadcasting FM 49% Government
8.2.2 Up-linking of “News and Current 26% Government
Affairs” TV channels
8.2.3 Up-linking of Non- “News and 100% Automatic
Current Affairs” TV channels
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9. Print Media
9.1 Publishing of newspaper & 26% Government
periodicals dealing with news and
current affairs
9.2 Publishing of Indian editions of 26% Government
foreign magazines dealing with news
and current affairs
9.3 Publishing/printing of scientific and 100% Government
technical
magazines/journals/periodicals
9.4 Publication of facsimile edition of 100% Government
foreign newspapers
10. Airports (Greenfield and Brownfield 100% Automatic
Investment)
10.1 Air Transport Services 100% Automatic up to 49%.
a. Scheduled Air Transport Beyond 49% government
Service approval is required
Regional Air Transport Service (Automatic up to 100%
for NRIs/OCIs)
10.1.1 Non-Scheduled Air Transport Service 100% Automatic
10.1.2 Helicopter services 100% Automatic
10.2 Other services under civil aviation 100% Automatic
sector
11. Construction development: 100% Automatic
Townships, Housing, Built-up
infrastructure
12. Industrial parks 100% Automatic
13. Satellites- Establishment and 100% Government
operation
14. Private security agencies 49% Government
15. Telecom services (including Telecom 100% Automatic up to 49%;
Infrastructure Providers Category-1) Government route
beyond 49%
16. Trading
Cash and carry wholesale trading 100% Automatic
E-commerce (B2B E-commerce 100% Automatic
activities, market place model of e-
commerce)
17. Multi-Brand Retail Trading 51% Government
18. Single-Brand Retail Trading 100% Automatic
19. Duty free shops 100% Automatic
20. Pharmaceuticals
20.1 Greenfield 100% Automatic
20.2 Brownfield 100% Automatic up to 74%;
Government route
beyond 74%
21. Railway infrastructure 100% Automatic

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22. Financial services

22.1 Asset reconstruction Companies 100% Automatic
22.2 Banking private sector 74% Automatic up to 49%;
Government route
beyond 49% and up to
74%
22.3 Banking public sector 20% Government
22.4 Infrastructure companies in the 49% Automatic
securities market

List of Prohibited Sectors:

• Lottery Business including Government/ Private lottery, online lotteries etc.
• Chit Funds
• Trading in Transferable Development Rights (TDR)
• Manufacturing of Cigars, cheroots, cigarillos, and cigarettes (tobacco or tobacco substitutes)
• Gambling and betting including casinos
• Nidhi Company
• Real Estate Business or Construction of Farm Houses
• Sectors not open to private sector investments – atomic energy, railway operations (other than
permitted activities mentioned under the consolidated FDI Policy)

1.4 How Governments Encourage FDI

• Governments seek to promote FDI when it is eager to expand its domestic economy and wants to
attract new technologies, business know-how, and capital to its country.
• In these instances, many governments still try to manage and control the type, quantity, and even
the nationality of the FDI to achieve their domestic, economic, political, and social goals.

Let’s take a look at some of the ways in which governments encourage FDI –

1. Financial Incentives:
• Host countries offer businesses a combination of tax incentives and loans to invest.
• Home-country governments may also offer a combination of insurance, loans, and tax breaks in an
effort to promote their companies’ overseas investments.

2. Infrastructure:
• Host governments improve or enhance local infrastructure—in energy, transportation, and
communications—to encourage specific industries to invest.
• This also serves to improve the local conditions for domestic firms.

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3. Administrative Processes and Regulatory Environment:

• Host-country governments streamline the process of establishing offices or production in their
countries.
• By reducing bureaucracy and regulatory environments, these countries appear more attractive to
foreign firms.

4. Investment in Education:
• Countries seek to improve their workforce through education and job training.
• An educated and skilled workforce is an important investment criterion for many global businesses.

5. Political, economic, and legal stability:

• Host-country governments seek to reassure businesses that the local operating conditions are
stable, transparent (i.e., policies are clearly stated and in the public domain), and unlikely to
change.

2.0 Foreign Portfolio Investment (FPI)

2.1 What is FPI?

• Foreign portfolio investment (FPI) involves an investor purchasing foreign financial assets.
• The transaction of foreign securities generally occurs at an organized formal securities exchange or
through an over-the-counter market transaction.
• It does not provide the investor with direct ownership of a company's assets and is relatively liquid
depending on the volatility of the market.
• Along with foreign direct investment (FDI), FPI is one of the common ways to invest in an overseas
economy.

• According to RBI,
FPI refers to investment made by a non-resident in capital instruments where such investment is:
o less than 10% of the post issue paid-up equity capital on a fully diluted basis of a listed Indian
company or
o less than 10% of the paid-up value of each series of capital instruments of a listed Indian
company.
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2.2 Difference between FDI and FPI

FDI FPI
FDI refers to the Investment in productive assets, FPI refers to the Investment in financial assets
i.e., the assets whose value increase over time like like stocks, bonds, mutual funds, etc.
plant and machinery for a business.
The objective of such an investment is to have The focus here is on earning good returns and
ownership right as well as the management right. such an investment offers only ownership right
and not the management right.
The person making an FDI gets engaged in decision The person making FPI is not involved in decision
making of a firm. making of the firm whose shares or other
instruments he owns.
Investors enter a country usually with long-term Investors can plan for long but often have short-
approach. term plans while making FPI.
Investment greater than 10% is considered as FDI. Investment less than 10% is considered as FPI.

2.3 FPI in India

• Foreign Portfolio investor is considered an intermediary by SEBI and are also regulated by SEBI.
• Every foreign portfolio investor has to obtain a certificate of registration from the designated
depository participant registered under SEBI.

Eligibility conditions to register as FPI:

• Applicant is not a resident Indian

• the applicant is not a non-resident Indian (NRI) or an overseas citizen of India
• Applicant should be a resident of a country whose securities market regulator is a signatory to
▪ IOSCO’s Multilateral MOU or
▪ Bilateral MOU with SEBI
(Note: IOSCO = International Organization of Securities Commissions)
• If the applicant is a bank, then it should be a resident of a country whose central bank is a member
of BIS (Bank for International Settlements)
• All existing Foreign Institutional Investors (FIIs) and QFIs are to be merged into one category called
FPI.

2.4 Categories of FPI

Category 1:
• Central banks
• Sovereign Wealth funds (SWFs)

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• International or multilateral organizations or agencies

• Pension funds and university funds
• Appropriately regulated entities such as insurance or reinsurance entities, banks, asset
management companies, investment managers, investment advisors, portfolio managers, broker
dealers and swap dealers.
• Entities from Financial Action Task Force (FATF) member countries which are:
▪ appropriately regulated
▪ unregulated funds whose investment manager is appropriately regulated and registered as a
category 1 FPI
▪ university related endowments of universities that have been in existence for more than 5
years

Category 2:
• Appropriately regulated funds not eligible as Category-1 FPI
• Endowments and foundations
• Charitable organisations
• Corporate bodies
• Family offices
• Individuals
• Appropriately regulated entities investing on behalf of their client
• Unregulated funds in the form of limited partnership and trusts

Note:
• The purchase of equity shares of each company by a single foreign portfolio investor including its
investor group shall be below 10 percent of the total paid-up equity capital of the company.
• A foreign portfolio investor shall appoint a branch of a bank authorized by RBI for opening of foreign
currency denominated account and special non-resident rupee account before making any
investments in India.

2.5 Voluntary Retention Route (VRR) for Investment by FPIs

• The Reserve Bank of India introduced the Voluntary Retention Route (VRR) for investments by
Foreign Portfolio Investors (FPIs) on March 01, 2019.
• The objective of the VRR channel is to attract long-term and stable FPI investments into debt
markets while providing FPIs with operational flexibility to manage their investments.
• Participation through this route is entirely voluntary.
• Investments made through the VRR will remain free from macro-prudential and other regulatory
norms which apply to FPI investments in debt markets in India.
• FPIs must voluntarily commit to retain at least 75% of their total investments under VRR for a period
of 3 years.

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• Eligible securities: Govt Securities (T-bills + SDL) and Corporate Debt Securities (Corporate Bonds +
Commercial Papers)
• Initially, the investment limit under the VRR was INR 75,000 crores, which was revised to INR
1,50,000 crores in January 2020.
• In February 2022, the RBI further increased the investment limit to INR 2,50,000 crores.

3.0 Disinvestment

3.1 What is a Public Sector Undertaking (PSU)?

• In India, a Public Sector Undertaking (PSU) is a state-owned enterprise in which majority of the
shares (51% or more) are owned by central government or by any state government or partly by the
central government and partly by one or more state governments.
• A PSU can be classified into following 3 categories:

Public Sector
Undertakings
(PSUs)

Central Public
Public Sector Banks State Level Public
Sector Enterprises
(PSBs) Enterprises (SLPEs)
(CPSEs)

Strategic CPSEs

Non-strategic
CPSEs

• CPSEs are further classified into:

▪ Maharatna Companies
▪ Navratna Companies
▪ Miniratna Companies
• This status is given to CPSEs by Department of Public Enterprises according to their financial
performance and growth.

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3.2 What is Disinvestment?

• Disinvestment is just opposite of investment. Investment refers to the conversion of money or cash
into securities, debentures, bonds or any other claims on money.
• On the other hand, disinvestment involves the conversion of money claims or securities into money
or cash.
• Disinvestment can also be defined as the action of an organisation (or government) where it sells
or liquidates an asset or subsidiary. It is also called ‘divestment’ or ‘divestiture.’
• In common parlance, disinvestment refers to sale from the government, partly or fully, of a
government-owned enterprise.

3.3 Approaches to Disinvestment

Approaches to
Disinvestment

Minority Majority Complete

Disinvestment Disinvestment Privatisation

Minority Disinvestment:
• A minority disinvestment is one such that, at the end of it, the government retains a majority stake
in the company, typically greater than 51%, thus ensuring management control.
• Historically, minority stakes have been either auctioned off to institutions (financial) or offloaded
to the public by way of an Offer for Sale.
• The present government has made a policy statement that all disinvestments would only be
minority disinvestments via Public Offers.
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Majority Disinvestment:
• A majority disinvestment is one in which the government, post disinvestment, retains a minority
stake in the company i.e. it sells off a majority stake.
• Historically, majority disinvestments have been typically made to strategic partners. These partners
could be other CPSEs themselves. Alternatively, these can be private entities.
• Again, like in the case of minority disinvestment, the stake can also be offloaded by way of an Offer
for Sale, separately or in conjunction with a sale to a strategic partner.

Complete Privatisation:
• Privatisation means the transfer of ownership, management, and control of the public sector
enterprises to the private sector.
• Complete privatisation is a form of majority disinvestment wherein 100% control of the company is
passed on to a private buyer.

3.4 Difference between Privatisation and Disinvestment

Basis for Privatization Disinvestment

Comparison
Meaning Privatization is the process of transfer Disinvestment is a process in which an
of ownership of a public sector organization or government sells or
undertaking to the private sector. liquidates the assets which it owns.
Involves Change in ownership Dilution of ownership
Shareholding of Less than 50% More than 50%
Government
Change in Results in a change in management May or may not result in a change in
management management
Scope Narrow Comparatively wide
Objective To provide financial support and to To make effective use of the public
enhance the efficiency of the concern. resource, and to increase operational
and dynamic efficiency.

3.5 What is Strategic Disinvestment?

• Strategic disinvestment implies the sale of substantial portion of the Government shareholding of
a central public sector enterprise (CPSE) of up to 50%, or such higher percentage as the competent
authority may determine, along with transfer of management control.

• In India, strategic disinvestment is guided by the basic economic principle that the government
should not engage in manufacturing/producing goods and services in sectors where competitive
markets are present.

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3.6 Objectives of Disinvestment

• To strengthen and improve the efficiency of public sector undertakings (PSUs)

• To improve Government’s budgetary position and reduce financial burden on the government.
Disinvestment will lead to reduced financial support to enterprises, additional resources through sale
of ownership and increased tax revenue after improvement in the efficiency of the firms.
• To attract domestic and foreign private investment and develop Indian capital markets
• To introduce competition and market discipline
• To enable government to focus on core activities and move out of non-core businesses.
• To encourage wider share of ownership
• To fund growth and development programmes

3.7 Methods of Disinvestment

1. Initial Public Offering (IPO) – Offer of shares by an unlisted 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 - allows 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 up to 50%, or such higher percentage as the competent authority may determine,
along with transfer of management control.

5. Institutional Placement Program (IPP) – Only institutions can participate in the offering.

6. CPSE Exchange Traded Fund (ETF) – Disinvestment through ETF route allows simultaneous sale of GoI's
stake in 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.

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3.7.1 Disinvestment through ETF

CPSE ETF:
• CPSE ETF is an exchange-traded fund that invests in 12 state-owned companies that are a part of
the Nifty CPSE index.
• It was first launched in March 2014.
• The portfolio is concentrated towards the energy and oil sector.
• Nippon Life India Asset Management is the manager of the fund.

Bharat 22 ETF:
• Bharat 22 ETF is an open-ended exchange traded fund and was first launched in November 2017.
• The underlying index of the fund comprises of 22 stocks of Central Public Sector Enterprises (CPSE),
Public Sector Banks and private companies which are Strategic Holding of Specified Undertaking of
Unit Trust of India (SUUTI).
• The said 22 stocks are spread across six sectors (Basic Materials, Energy, Finance, FMCG, Industrials
and Utilities).
• The government of India has appointed ICICI Prudential AMC to create, launch and manage Bharat
22 ETF.

Bharat Bond ETF:

• It is an open-ended Target Maturity Exchange Traded Bond Fund listed on NSE, which invests money
in public sector bonds.
• It is India’s first bond ETF. It opened for investment in December 2019.
• Funds will be invested in bonds issued by CPSEs/CPSUs/CPFIs and other Government organizations
of AAA credit rating for fixed maturity periods of three years and 10 years (2023 series and 2030
series).
• It follows Nifty BHARAT Bond ETF Index.
• It is managed by Edelweiss AMC.

3.8 Department of Investment and Public Asset Management (DIPAM)

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• The Department of Disinvestment was first set up in 1999 as a separate department. It was renamed
as Ministry of Disinvestment in 2001.
• In 2004, the Ministry of Disinvestment was converted back into a Department under the Ministry of
Finance.
• The Department of Disinvestment was renamed as “Department of Investment and Public Asset
Management (DIPAM)” under the “Ministry of Finance” in 2016.
• DIPAM deals with all matters relating to management of Central Government investments in equity
including disinvestment of equity in Central Public Sector Undertakings.
• The four major areas of its work are –
▪ Strategic Disinvestment
▪ Minority Stake Sales
▪ Asset Monetisation
▪ Capital Restructuring

3.8.1 Vision and Mission of DIPAM

Vision:
• Promote people’s ownership of Central Public Sector Enterprises to share in their prosperity through
disinvestment.
• Efficient management of public investment in CPSEs for accelerating economic development and
augmenting Government’s resources for higher expenditure.

Mission:
• List CPSEs on stock exchanges to promote people’s ownership through public participation and
improving efficiencies of CPSEs through accountability to its shareholders.
• To bring in operational efficiencies in CPSEs through strategic investment, ensuring their greater
contribution to economy.
• Adopt a professional approach for financial management of CPSEs in the national interest and
investment aimed at expanding public participation in ownership of CPSEs.

3.8.2 Functions of DIPAM

• DIPAM is the nodal agency of Union Finance Ministry mandated to advise the Union Government
in the matters of financial restructuring of PSUs and for attracting investment through capital
markets.
• DIPAM has been made the nodal department for the strategic stake sale in the Public Sector
Undertakings (PSUs).
• DIPAM and NITI Aayog jointly identifies PSUs for strategic disinvestment.

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3.8.3 Mandate of DIPAM:

• All matters relating to management of Central Government investments in equity including

disinvestment of equity in Central Public Sector Undertakings.
• All matters relating to sale of Central Government equity through offer for sale or private placement
or any other mode in the erstwhile Central Public Sector Undertakings.
• Decisions on the recommendations of Administrative Ministries, NITI Aayog, etc. for disinvestment
including strategic disinvestment.
• All matters related to Independent External Monitor(s) for disinvestment and public asset
management.
• Decisions in matters relating to Central Public Sector Undertakings for purposes of Government
investment in equity like capital restructuring, bonus, dividends, disinvestment of government equity
and other related issues.
• Advise the Government in matters of financial restructuring of the Central Public Sector Enterprises
and for attracting investment in the said Enterprises through capital market.
• The Unit Trust of India Act, 1963 (52 of 1963) along with subjects relating to Specified Undertaking
of the Unit Trust of India (SUUTI).

3.8.4 National Investment Fund

• The Government had constituted the National Investment Fund (NIF) in November 2005 into which
the proceeds from disinvestment of Central Public Sector Enterprises were to be channelized.
• Selected Public Sector Mutual Funds, namely UTI Asset Management Company Ltd., SBI Funds
Management Private Ltd. and LIC Mutual Fund Asset Management Company Ltd. were entrusted
with the management of the NIF corpus.
• As per this Scheme,
▪ 75% of the annual income of the NIF was to be used for financing selected social sector
schemes which promote education, health and employment.
▪ The residual 25% of the annual income of NIF was to be used to meet the capital investment
requirements of profitable and revivable PSUs.

• In order to align the NIF with the disinvestment Policy, Government decided (17th January 2013)
that the disinvestment proceeds, with effect from the fiscal year 2013-14, will be credited to the
existing NIF which is a 'Public Account' under the Government Accounts and the funds would remain
there until withdrawn/invested for the approved purposes.

• It was also simultaneously decided that the NIF would be utilized for the following purposes:
▪ Subscribing to the shares being issued by the CPSE on rights basis so as to ensure that 51%
ownership of the Government in CPSEs is not diluted.

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▪ Preferential allotment of shares of the CPSE to promoters as per SEBI (Issue of Capital and
Disclosure Requirements) Regulations, 2009 so that Government shareholding does not go
down below 51% in all cases where the CPSEs desire to raise fresh equity to meet their Capex
programme.
▪ Recapitalization of public sector banks and public sector insurance companies so as to
strengthen them by further capital infusion towards achieving the Basel III norms.
▪ Investment by Government in RRBs/IIFCL/NABARD/Exim Bank.
▪ Equity infusion in various Metro projects.
▪ Investment in Bhartiya Nabhikiya Vidyut Nigam Limited and Uranium Corporation of India
Ltd.
▪ Investment in Indian Railways towards capital expenditure.

3.9 Disinvestment in India

• Since the late 1990s, disinvestment has become an almost regular feature of the Union budgets
under successive governments, which set a target each year to raise funds from stake sales in public
sector enterprises.
• Disinvestment has led to mixed results for the governments in terms of meeting the revenue targets.
• Governments select disinvestment candidates based on various factors, such as its existing stake in
the company, private sector interest in ownership of that enterprise, general market conditions,
expected value realisation etc.
• The Government had set a disinvestment target of 1.05 lakh crore rupees for the financial year
2019-20.
• The Government is working on enabling provisions to reduce its stake to less than 51 per cent and
yet retain control of the Central Public Sector Enterprises (CPSEs) in non-priority and non-strategic
sectors.

Features of Disinvestment Policy of India:

• Public Sector Undertakings are the wealth of the nation and to ensure this wealth rests in the hands
of the people, promote public ownership of CPSEs.
• While pursuing disinvestment through minority stake sale in listed CPSEs, the Government will retain
majority shareholding, i.e. at least 51% of the shareholding and management control of the PSUs.
• Strategic disinvestment by way of sale of substantial portion of Government shareholding in
identified CPSEs up to 50% or more, along with transfer of management control.

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