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Disinvestment by Government and National Investment Fund

Disinvestment by Government and National Investment Fund

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Let us first understand the concept of disinvestment which will be useful in understanding this article.

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.

Disinvestment and NIF

National Investment Fund

Constituted in:

Constituted by the Cabinet Committee on Economic Affairs in January, 2005

Started Functioning from:

October, 2007

Initial Features:

  • 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.

Initialized with:

2 CPSEs namely PGCIL and REC.

Managed By:

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)

Exemption period, if any:

Full utilization of the disinvestment proceeds from April 2009-March 2013 due to global slowdown of 2008-09, severe drought in 2009-10 and persistent difficult condition of the economy. The funds to be used for selected social sector schemes as decided by the Planning Commission/Department of Expenditure.

Changes in the fiscal year fiscal year 2013-14:

  1. Disinvestment proceeds with effect from the fiscal year 2013-14 will be credited to the existing ‘Public Account’ under the head NIF.
  2. Subscribing to the shares being issued by the CPSE including PSBs and Public Sector Insurance Companies, on rights basis so as to ensure 51% ownership of the Government in those CPSEs/PSBs/Insurance Companies, is not diluted.
  3. 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 CPSE is going to raise fresh equity to meet its Capex programme.
  4. Recapitalization of public sector banks and public sector insurance companies.
  5. Investment by Government in RRBs/IIFCL/NABARD/Exim Bank.
  6. Equity infusion in various Metro projects.
  7. Investment in Bhartiya Nabhikiya Vidyut Nigam Limited and Uranium Corporation of India Ltd.
  8. Investment in Indian Railways towards capital expenditure
  9. Fund Managers presently managing the NIF will stand discharged of their responsibility from the date the funds and the interest income are transferred to the fund.
  10. As on 31st August 2012 the corpus in the NIF comprises the disinvestment proceeds of Power Grid Corporation of India and the Rural Electrification Corporation Limited done during 2007-08. This corpus is presently invested through three Public Sector fund managers (SBI, LIC and UTI Mutual Funds).

References:

www.divest.nic.in/Nat_inves_fund.asp
http://www.thehindu.com/business/Economy/national-investment-fund-gets-nod-to-buy-psu-shares/article4316745.ece
http://articles.economictimes.indiatimes.com/2013-01-18/news/36415860_1_disinvestment-proceeds-nif-national-investment-fund
www.pib.nic.in/release/release.asp?relid=91624