Disinvestment in the budget angle means selling the shares of Public Sector Enterprises.
There are different methods for the sale of shares. If the government is selling minority shares, say, less than 50% of the shares in a PSE, it will continue to the owner of the PSE. Usually, the government is retaining the majority shares while selling only a minor proportion of the shares. This is the normal disinvestment followed in the case of PSEs.
But in the case of some enterprises, the government will be selling majority shares to a selected private sector or other entity and this method is called strategic disinvestment or strategic sale.
Here, the PSEs for strategic disinvestment will be selected based on certain criteria. Some times, such PSEs may be incurring losses or may be operationally difficult for the government to continue with the PSE.
What is strategic disinvestment or strategic sale?
Strategic disinvestment is transferring the ownership and control of a public sector entity to some other entity (mostly to a private sector entity). Unlike the simple disinvestment, strategic sale implies some sort of privatization.
The disinvestment commission defines strategic sale:
“Strategic disinvestment would imply the 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.”
For 2018-19, though the government has identified nearly 25 small CPSEs for strategic disinvestment, the process is taking too much time.
As a result, the government is facing difficulty to meet the disinvestment target.
Strategic disinvestment in the past
In India, the strategic disinvestment route was less used. It was used only when the ruling party gets considerable majority as it needs substantial political will.
A revival of the strategic sale method occurred from budget 2016 onwards. The Government has proposed strategic sale or strategic disinvestment of PSEs for reviving them as well as to mobilize fund form the sale of shares of PSEs.
Recent changes in the process of strategic disinvestment- formation of Alternative Mechanism
To speed up the strategic disinvestment route, in March 2019, the government transferred most of the decision-making power to the Finance Minister led Ministerial panel called Alternative Mechanism (AM).
Role of the Alternative Mechanism
The AM is led by Finance Minister and includes Road Transport Minister (Nitin Gadkari) and the minister representing the administrative department concerned.
It was created in Formed in 2017, for setting the terms and conditions of strategic sale. But with the March 2019 decision, bulk of the decisions on strategic disinvestment is to be made by the body.
Major decisions associated with strategic sale including the quantity of shares to be sold, the mode of sale and the final pricing of the transaction etc. are to be decided by the AM.
In the same way, decisions like designing the principles/guidelines on pricing of shares, the selection of strategic partner/buyer, and the terms and conditions of sale are also to be decided by the AM. The AM can also decide on the timing of the sale and any other related issue regarding the transaction.