Disinvestment by Government and National Investment Fund
In general terms, Disinvestments refers to the sale/liquidation of an asset or subsidiary by an organization. However, for any government, it is the sale/liquidation of a government owned enterprise by the government for the purpose of raising resources in order to achieve some specific goals.
In India, PSU are more of a liability on a government than an asset due to the negative rate of return on capital employed. Due to low savings on part of the PSU, the Gross National Savings were getting reduced by 10-15 % thus indicating that profits were on the negative side. Thus Disinvestment Policy was being used by the government to unburden itself from financing the PSU’s and to fund growth by selling the shares of these PSUs. The funding obtained is then used to support more important aspects of governments like investing in social sector schemes, etc. However, the government would always maintain an ownership of 51% on the shares of a PSU sold, as mandated.
Thus formed the National Investment Fund through which the disinvestment of the PSUs was channelized.
Constituted by the Cabinet Committee on Economic Affairs in January, 2005
Proceeds from disinvestment of Central Public Sector Enterprises were to be channelized.
Corpus of the fund was to be of permanent nature and the same was to be professionally managed in order to provide sustainable returns to the Government, without depleting the corpus.
Selected Public Sector Mutual Funds will be entrusted with the management of the corpus of the Fund.
75% of the annual income of the Fund will be used to finance selected social sector schemes, which promote education, health and employment. The residual 25% of the annual income of the Fund will be used to meet the capital investment requirements of profitable and revivable CPSEs that yield adequate returns, in order to enlarge their capital base to finance expansion/ diversification.
Maintained outside the consolidated fund of India.
3 Public Sector Fund Managers – UTI Asset Management Company, SBI Funds Management Company and LIC Mutual Fund Asset Management Company.
Income utilized in schemes:
1. Jawaharlal Nehru National Urban Renewal Mission (JNNURM), 2. Accelerated Irrigation Benefits Programme (AIBP) 3. Rajiv Gandhi Gramin Vidyutikaran Yojana (RGGVY) 4. Accelerated Power Development and Reform Programme 5. Indira Awas Yojana 6. National Rural Employment Guarantee Scheme (NREGS)
Changes in the fiscal year fiscal year 2013-14:
Disinvestment proceeds with effect from the fiscal year 2013-14 will be credited to the existing ‘Public Account’ under the head NIF.
Recapitalization of public sector banks and public sector insurance companies.