Context:
The Union Finance Ministry is set to initiate phased stake sales in public sector general insurers — New India Assurance Company and General Insurance Corporation (GIC Re) — to comply with SEBI’s Minimum Public Shareholding (MPS) requirement of 25% for all listed companies, including public sector units.
Regulatory Mandate
- As per SEBI’s Rule 19A of the Securities Contracts (Regulation) Rules, 1957, and Regulation 38 of the SEBI Listing Regulations:
- All listed companies must maintain at least 25% public shareholding.
Disinvestment vs Privatization
The Government of India continues to pursue disinvestment and privatization as part of its economic reform agenda. While often used interchangeably, both terms have distinct meanings and implications.
1. Disinvestment
Disinvestment refers to the sale or liquidation of government-owned shares in Public Sector Undertakings (PSUs) or other government-owned assets.
Purpose:
- Raise revenue for the government
- Reduce fiscal burden and debt
- Improve operational efficiency
- Promote wider share ownership
Types:
- Minority Disinvestment: Government retains majority stake and control
- Majority Disinvestment: Government loses majority stake but may retain some control
- Strategic Disinvestment: Transfer of both majority ownership and management control to a private entity (often overlaps with privatization)
Example:
- Government selling a 10% stake in Coal India through public offer
- Strategic sale of Air India to Tata Group (also considered privatization)
2. Privatization
Privatization is the process of transferring ownership and management of a public sector entity to the private sector.
Purpose:
- Improve efficiency through private management
- Promote competition
- Reduce political interference in commercial operations
- Focus government on core welfare functions
Modes:
- Full sale to private entity
- Public-private partnerships (PPPs)
- Strategic sale with management control transfer
Example:
- Full ownership transfer of Air India to Tata Group
- Conversion of public hospitals or transport services to private management
