Disinvestment Policy – Shift from Disinvestment to Asset Monetisation

Disinvestment Policy Latest News

• Since the announcement of the revamped Disinvestment Policy (2020) and the Public Sector Enterprises (PSE) Policy (2021), the Union Government initially emphasized privatisation and strategic disinvestment. 
• However, recent policy developments — including the launch of the National Monetisation Pipeline (NMP) 2.0 — indicate a clear shift from asset sales to value extraction and asset monetisation.
• The focus is on dividends and leasing of assets instead of outright privatisation.

Evolution of Disinvestment Policy

• Original privatisation push (2020–21): The Public Sector Enterprises Policy (2021) provides a framework for –
  • Government to exit non-strategic sectors.
  • Minimum presence in strategic sectors.
  • Strategic disinvestment encouraged where private sector capacity exists.
• Policy rationale: Government should minimise direct business operations. The private sector is seen as more efficient in managing enterprises.

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Declining Disinvestment Revenues

• Temporary surge: 2022–23 disinvestment revenue (₹35,294 crore), with stake sales in ONGC, LIC, GAIL, and IRCTC, ended a four-year declining trend.
• Subsequent decline: Disinvestment proceeds fell sharply. For example, from a disinvestment revenue of ₹16,507 crore in 2023-24 to ₹10,163 crore (2024-25) and ₹15,562 crore (till date in 2025–26).
• Policy signals:
  • Key changes indicate reduced emphasis on privatisation.
  • Removal of separate disinvestment category in Budget documents.
  • Disinvestment receipts merged into “Miscellaneous Capital Receipts.”
  • No annual disinvestment targets.

Reasons for Reduced Privatisation

• Limited private sector interest: 
  • Key constraints include large employee headcounts, loss-making assets, structural inefficiencies, and political and labour resistance.
  • These factors made many Public Sector Enterprises unattractive to private investors.
• Increasing focus on dividend income:
  • Consistent Dividend Policy (2020): The Department of Investment and Public Asset Management (DIPAM) advised CPSEs to pay higher dividends, use cash reserves efficiently, and balance capex needs and profitability.
  • Capital Restructuring Guidelines (2024): Revised guidelines emphasized value creation in CPSEs, maximising returns for the government.
  • Rising dividend receipts: From ₹39,750 crore in 2020–21 to ₹74,128 crore (2024-25) and ₹59,730 crore (so far in 2025-26). Dividend income now significantly exceeds disinvestment proceeds.

Asset Monetisation as the New Strategy

• National Monetisation Pipeline (NMP): 
  • Launched in 2021 to monetise brownfield infrastructure assets through leasing arrangements. Key features include –
    • No transfer of ownership
    • Private sector participation
    • Revenue generation from idle or underutilised assets
  • Performance: About 90% of the target [₹6 lakh crore (2021–25)] achieved.
• National Monetisation Pipeline 2.0 (2025–30):
  • Target: ₹16.72 lakh crore
  • Focus sectors: Transport infrastructure, energy assets, telecom, warehousing, etc.
  • This represents a major expansion of the asset monetisation approach.

Advantages of the New Approach

• Fiscal benefits: Stable and predictable revenue through dividends. Reduced political resistance compared to privatisation. Avoids one-time asset sales.
• Economic benefits: Improves utilisation of public assets, encourages private sector efficiency, and retains public ownership.
• Administrative benefits: Lower complexity compared to strategic disinvestment, and faster implementation.

Challenges and Way Forward

• Fiscal risks: Dividend extraction may reduce reinvestment capacity of CPSEs. Overdependence on dividends can weaken long-term growth.
  • Strengthen corporate governance: Professional management of CPSEs, reduced political interference.
  • Selective privatisation: Focus on loss-making non-strategic sectors.
• Structural issues: Persistent inefficiencies in CPSE management. Asset monetisation does not address operational problems.
  • Balanced public sector reform: Combine strategic disinvestment with monetisation  and governance reforms.
• Market risks: Private sector interest depends on economic conditions. Monetisation revenues may fluctuate.
  • Efficient asset monetisation: Transparent bidding processes, and strong regulatory oversight.
• Policy inconsistency: Shift from privatisation to monetisation may create uncertainty among investors.
  • Sustainable dividend policy: Avoid excessive dividend extraction, and ensure adequate capital expenditure.

Conclusion

• India’s public sector reform strategy is undergoing a significant transition from privatisation to asset monetisation and dividend extraction. 
• While this approach provides steady fiscal returns and political acceptability, long-term success will depend on balancing revenue generation with the financial health and competitiveness of CPSEs. 
• A calibrated mix of privatisation, monetisation, and governance reforms remains essential for sustainable public sector management.

Source: TH