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Government shifts disinvestment advising role to Department of Economic Affairs

The Union Government has transferred the advising role of Department of Investment and Public Asset Management (DIPAM) on utilisation of the proceeds from disinvestment to the Department of Economic Affairs (DEA).

This announcement comes after the Union Cabinet approved an alternative mechanism to decide the modalities to do with stake sales in PSUs, so as to speed up the process and to streamline the disinvestment process.

Key Facts
  • The DEA in the Union Finance Ministry will now be in charge of financial policy in regard to the utilisation of proceeds of disinvestment channelised into the National Investment Fund (NIF).
  • The National Investment Fund was created in 2005 in which the proceeds from the disinvestment of Central Public Sector Enterprises (CPSEs) were to be channelised.
  • During his Budget speech 2016-17, Union Finance Minister Arun Jaitley had announced renaming the previously known Department of Investment as DIPAM.

Earlier the Cabinet Committee on Economic Affairs (CCEA) had given its approval to Alternative Mechanism to decide the modalities to do with stake sales in PSUs. Under this mechanism, the quantum of disinvestment in a particular Central Public Sector Undertaking (CPSE) will be decided on a case-by-case basis subject to Government retaining 51% equity and management control.

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CCEA approves listing of five general insurance PSUs at the stock exchanges

The Cabinet Committee on Economic Affairs (CCEA) has given its ‘in principle’ approval for listing the five Public Sector General Insurance Companies (2016-17) owned General Insurance Companies in the stock exchanges.

They are New India Assurance Company Ltd, United India Insurance Company Ltd, Oriental Insurance Company Ltd, National Insurance Company Ltd and General Insurance Corporation of India.

The shareholding of these PSGICs will be divested from 100% to 75% in one or more tranches over a period of time as per Securities and Exchange Board of India (SEBI) and Development Authority of India (IRDAI) rules and regulations.

Significance of listing of PSGICs
  • Bring transparency and equity in the companies functioning as listing on the stock exchange necessitates compliance requirements of SEBI.
  • Improve corporate governance and risk management practices leading to improved efficiency. It will lead to greater focus on growth and earnings.
  • Open the way for the companies to raise resources from the capital market to meet their fund requirements to expand their businesses, instead of being dependent on the Government for capital infusion.
  • Divestment in these companies will help government in raising resources and portion of the funds can be used by the company for expansion.
Background

The Union Finance Minister in his 2016-17 Budget speech had announced that public shareholding in Government-owned companies is a means of ensuring higher levels of transparency and accountability. In order to promote this objective, the general insurance companies owned by the Government will be listed on the stock exchanges.

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Union Government gives in-principle approval for strategic sale in some PSUs

The Union Cabinet has given its in-principle approval for strategic sale of over a dozen public sector undertakings (PSUs).

This decision was taken based on the recommendation of NITI (National Institution for Transforming India) Aayog’s proposal on disinvestment and strategic sale of sick PSUs.

Key Facts

  • The strategic disinvestment of such public sector units with the transfer of management control to a private entity will be taken up subsequently on a case-by-case basis.
  • It will be undertaken after consultations with their respective administrative ministries without any timeline.
  • The Union Government had set a target to raise Rs. 20,500 crore in 2017-18 through strategic sales of PSUs and another Rs. 36,000 crore from sale of minority stakes in PSUs.
  • There is no specific timeline set for disinvestment and strategic sale of sick PSUs. Each PSU will be considered on ‘its own merit’ with the timing of the sale to be decided accordingly.
  • Union Government will follow settled valuation procedures in a transparent process for such transactions.

What is strategic disinvestment?

  • In Strategic disinvestment the management control and a significant proportion of a PSU’s share goes to a private sector strategic partner.
  • Thus, strategic disinvestment of a PSU is different from the ordinary disinvestment in which management of PSU is retained with Government.
  • According to the Department of Disinvestment, in the strategic disinvestment of a PSU, the transaction has two elements: (i) Transfer of a block of shares to a Strategic Partner and (ii) Transfer of management control to the Strategic Partner.

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