This post is on one of the important topicsDisinvestment of Shares by Govt from the latest CAIIB BR & BL Syllabus 2023.

Indian Institute of Banking and Finance introduced a new syllabus for one of its flagship courses i.e. CAIIB. As this new syllabus is applicable from the 2023 June Exams onwards, one should start preparing for all 5 papers of CAIIB. There have been quite changes in the concepts & topics of the CAIIB’s latest Syllabus 2023

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The one thing, that’s visible from the baseline is that the syllabus has been increased in both ways: More concepts have been added & the no. of papers required to pass Certified Associate of the Indian Institute of Bankers from 2023 onwards has been increased. And in this article, we will go through one of the important topics from the new paper introduced in the CAIIB 2023 Syllabus i.e Disinvestment of Shares

We will understand the meaning, the need, and the policy of disinvestment in India that goes beyond the textual information prescribed by IIBF by the end of this page.



Disinvestment refers to returning securities or money claims to cash, whereas investment refers to converting cash into securities, debentures, bonds, or other instruments. Disinvestment can also be viewed from a different angle as a means of selling assets for money.

The market activity in which the government sells or liquidates government-owned assets is referred to as the disinvestment strategy in general terms. In other words, when Central and State public sector companies owned by the government are sold off, it’s called disinvestment. Government assets could be comprised of fixed assets and other project endeavours.

This step is taken to reduce the fiscal deficit and to raise funds so that public needs can be addressed. Sometimes, disinvestment is also done with the purpose to privatise the public sector companies.


The following are the primary goals of disinvestment in India:

  • Promoting an open ownership share
  • Removing politics from critical services
  • Lowering the cost of doing business with the government enhancing public budgets (For health, education welfare programs, MGNREGA (Mahatma Gandhi National Rural Employment Guarantee Act 2005), etc
  • Enhancing R&D capability and strength
  • Upgrading public sector companies’ technology to stay competitive
  • Rivalry, and market regulation
  • Rationalizing the workforce and re-training it
  • Starting the expansion and diversification programmes
  • Reduce the financial burden on the government of sick, loss-making PSUs



So, let us learn how India’s disinvestment policy has evolved since its inception in 1991 along with the various approaches to disinvestment taken by the various governments that came into power. We will also talk about the DIPAM, Department of Investment and Public Asset Management, which takes care of all the matters relating to the sale of Central Government equity through offer for sale / private placement / any other mode in the Central Public Sector Undertakings.

The finance minister announced the renaming and restructuring of the Department of Disinvestment in the 2016-17 budget speech. Because of this, it has been renamed to ‘Department of Investment and Public Asset Management’ / ‘DIPAM’ but it still has to report to the Ministry of Finance.

PURPOSE of DIPAM: Efficient management of the centre’s equity investments, including disinvestment from central public sector undertakings (CPSU).


  • advising the government on the financial restructuring of CPSUs.
  • Obtaining capital through capital markets.
  • Dealing with issues such as capital restructuring, dividends, bonus shares, and so on.


Here is the timeline on which Indian Govts. disinvested in the public sector:

PRE 1990 The socialistic pattern of management in PSU’s 

License Raj Era

1990 Balance of Payment (BOP) Crisis
1991 The era of Liberalization Privatisation &

Industrial Policy Statement

1991-92 20% disinvestment in Select PSU

Shares were sold to Mutual Funds & Financial in

1992-93 The investor base was expanded to include FIL, PSU employees & banks
1993 Rangarajan Committee

-49% of disinvestment in PSU’s reserved for the public sector 

-74% disinvestment in all other PSU’s

-Cost did not implement these recommendations

1996 Setting up of Disinvestment Commission
1998-00 Vajpayee Govt classified PSU’s into:

Strategic: Defence, Railways, Atomic (No disinvestment) 

Non-Strategic: Disinvestment in a phased manner 

Department of Disinvestment was established

2001 Dept of Disinvestment renamed as Ministry of Disinvestment
2004 UPA Govt adopted the Common Minimum Programme (CMP)

-Revive Sick PSU’s

-No Disinvestment in profitmaking PSU’s 

-PSU’s to get commercial

Ministry of Disinvestment scaled back

2005 Formation of the National Investment Fund

75% proceeds for the social sector

25% proceeds for Capitalization of PSU’s

2005-09 Disinvestment remained stagnant due to pressure from Left parties
2009-10 Revival of Disinvestment policy
2011-14 The disinvestment process slowed down, targets could not be met due to:

-Inter-ministerial disputes

-Lukewarm response from investors

-External & Internal market conditions

2014-PRESENT New Disinvestment Policy

Setting up of DIPAM NITI Aayog vested with recommendation powers



Following the economic liberalisation, privatization & globalisation, (LPG) and structural changes introduced in 1991, disinvestment of a portion of the government’s holdings in public firms became an option for the Indian government. Initially, it was not intended to privatise already-existing public firms, but rather to sell a small amount of equity or shares to raise money to close the budgetary gap and ensure market discipline to improve the performance of public enterprises. And this is how the different Governments went on disinvesting:


Balance Of Payments Crisis: In the earliest of November 1990, India was facing a looming balance of payments crisis that raised an unprecedented possibility of default on sovereign debts. 

  • The Government had to act quickly to raise funds and cut spending since the import cover had fallen to a dangerously low level of < 1 month. 
  • To raise money, it was planned to sell stock in state-owned public sector firms & various discussions between India and the IMF were held with respect to the Compensatory and Contingency Financing Facility (CCFF). 
  • However, there was a disagreement over how will the money collected from such sale be used.
  • The earnings were going to be used by the government to close the budget deficit. However, the IMF initially opposed this since the revenues, which are referred to as capital receipts in accounting speak, wouldn’t be utilised to reduce debt or in other economically productive ways.
  • India persuaded the International Monetary Fund that it would be preferable to enable fiscal managers to utilise the fund to reduce the deficit at this time (under country’s current economic difficulties).
  • The first time the sale of assets by Public Sector Enterprises was mentioned was in the interim budget of 1991. 
  • Disinvestment was utilised instead of privatization since that phrase was more acceptable politically. However, the plans were never carried out because to political unrest.


Under the P V Narasimha Rao-Manmohan Singh combination, the 1991 economic reforms were implemented & the initial sales of shares of public sector enterprises in small bundles to MFs and institutional investors took place in 1991–1992 but not without encountering challenges in their execution.

  • The World Bank amid the discussions was in favour that funds collected from the sale of shares in public sector enterprises should only be used to lower the government debt. 
  • But in September 1991, the Finance Ministry did succeed in persuading the World Bank to consider India’s economic difficulties.
  • Industrial Policy: The 1991 statement called for a thorough evaluation of public sector investments with a focus on strategic and vital infrastructure projects as well as innovative approaches to deal with chronically ill and loss-making units.
  • The range of disinvestment was gradually expanded by succeeding coalition governments in the 2nd half of the 1990s to create a clear distinction between strategic and non-strategic enterprises. 
  • It allowed the government to retain the majority of the ownership (51%) in strategic enterprises while reducing its shareholding in non-core enterprises to 26%.


Creation of Disinvestment Commission: In 1996, the Government of India formed a panel to thoroughly assess the public sector’s withdrawal from non-core, non-strategic areas and to provide job security and possibilities for retraining and reemployment for employees.

The budget for that year promised to use the proceeds from these equity sales for health and education initiatives as well as to create a fund to support PSUs. 

  • But for years, most of the money collected from disinvestments has been routed to the Consolidated Fund of India, to reduce the deficit.
  • The commission recommended the sale of equities or the outright sale of several PSEs, including Air India.


The government said in the 1998-99 Budget that it would reduce its stake in PSUs to 26% while maintaining majority ownership in companies that were deemed important. It also included a commitment to uphold workers’ rights and to establish a restructuring fund to pay workers’ compensation.

  • Privatization was only intended to occur in non-strategic areas through strategic transactions. 
  • This govt. also established the idea of strategic sales of PSUs, among them Modern Bakeries, and Balco. & Hindustan Zinc which had led to some stoked significant issues as well.
  • The Government changed the definition of the demarcation in 1999 to only designate railroads, atomic energy projects, and defence-related businesses as strategic enterprises
  • And all other businesses were labelled as non-strategic.
  • The government’s resolve to implement the policy was demonstrated by the establishment of a new Department of Disinvestment in 1999, which later evolved into a full-fledged Ministry in 2001.


This government was never interested in strategic sales but pledged to pursue privatisation only under specific circumstances in 2004. Contrary to what the NDA had done so far, there wasn’t any disinvestment.  Instead, the money was earned to achieve short-term objectives. 

  • Specific social welfare programmes were to be funded using the profits from disinvestment.
  • To accomplish this, the National Investment Fund (NIF) was formed in 2005 & all the proceeds from disinvestment were deposited in it. 
  • The Fund intended to support social welfare programmes in the fields of employment, health care, and education with 75% of the proceeds. 
  • It was overseen by knowledgeable investment professionals. 
  • However, the 2008–2009 financial crisis and the ensuing drought caused a 3-year hiatus in this. 
  • Later, in 2013, NIF underwent modifications to allow for flexible Fund usage.


Although the UPA government’s 2009 ban on strategic sales has been repealed, it is clear that Prime Minister Modi does not intend to emulate Margaret Thatcher (former British prime minister). Thatcher was of the view that the government had no business operating PSUs & she oversaw the privatisation of 670 UK public sector companies was done in the 1980s. This approach was in line with the New Public Management (NPM) paradigm.

  • If privatization is to go out of business by transferring state properties and businesses to private hands, Modi’s new disinvestment strategy might result in more government control over PSEs.
  • The new strategy does not intend to reduce the size of the public sector.
  • But it is intended to change the size so that assets, such as land and cash balances of PSUs, may be segregated and used for investment in new projects.
  • It can be seen in the rebranding of the Department of Disinvestment as the “Department of Investment and Public Asset Management”.
  • Instead of leaving the public sector, the present administration is pursuing disinvestment to increase its effectiveness. 
  • The new disinvestment aims to: 
  • Minimize govt. interference 
  • Allow public sector endeavours to operate in accordance with commercial principles 
  • Grant management the requisite autonomy in decision-making, such as in appointment.
  • The new policy has made it quite obvious the difference between privatisation and disinvestment. 
  • Disinvestment is some fiddling here and there, whereas privatisation entails sales of the stock higher than 50%, perhaps even 100% stake. 
  • The new disinvestment policy corrects the trend by mandating that land be appraised at market value before being included in transactions. 
  • NITI Aayog has been tasked with developing fresh suggestions for loss-making entities that can be sold with respect to their valuation and disposal, and carrying out potential strategic transactions.


The new year is bringing a new set of challenges for our bankers. Indian Institute of Banking and Finance had recently notified the changes in the syllabus of Certified Associate of the Indian Institute of Bankers Exams from 2023 onwards. And this paper: BR & BL named Banking Regulations & Business Laws is a newly added paper.

But bankers need not worry when they have Learning Sessions and Courses to study!

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  • Practice Tests as per the latest prescribed CAIIB 2023 pattern.

So, armed with all the tools, you can satisfactorily join Learning Sessions for your CAIIB Exam preparation. 

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