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Prelims POWER PLAY Economy-1


Disinvestment is the process of reducing the share of government in public sector undertakings.

Disinvestment of a minority stake in PSUs can be done in the following ways:
● Initial Public Offering (IPO): an offer of shares by an unlisted PSU to the public for the first time.

● Follow-on Public Offering (FPO): also known as Further Public Offering, it's an offer of shares by a listed PSU.

● Offer for sale (OFS): shares of a PSU are auctioned on the platform provided by the stock exchange.
This mode has been used extensively by the government since 2012.

● Institutional Placement Programme (IPP): under this, only selected financial institutions are allowed to participate and the government stake is offered to only such institutions. E.g., mutual funds,insurance, and pension funds such as LIC etc.

● CPSE Exchange Traded Fund (ETF): Through this route, the government can divest its stake in various PSUs across diverse sectors through a single offering. This mechanism allows the government to monetize its shareholding in those PSUs which form part of the ETF basket.

● Cross-holdings: in this method, one listed PSU takes up the government stake in another listed PSU.

Disinvestment of a majority stake in PSUs:
● Strategic sale: it is the sale of a substantial portion of government shareholding, 50 percent or higher, in a PSU, along with the transfer of management control.

● Privatization: it's a type of strategic sale in which the government divests its shareholding, along with the transfer of management control, to a private entity.



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