From April 1, income from disinvestment can be used for recapitalisation of public sector banks and for subscribing to rights issues of Central Public Sector Undertakings (CPSUs).
Since April 2009, the disinvestment proceeds were being used in full for meeting the capital expenditure requirements of select social sector programmes. This was a one-time exemption, which is scheduled to end on March 31.
On Thursday, the Cabinet Committee on Economic Affairs (CCEA) approved the new norms. According to a Government statement, the disinvestment proceeds, with effect from the fiscal year 2013-14, will be credited to the existing ‘public account’ under the head National Investment Fund (NIF), and would remain there until withdrawn or invested for the approved purposes.
In this regard, three purposes have been approved.
The NIF will be used for recapitalisation of public sector banks and insurance companies.
The fund will also be utilised for subscribing to shares issued by CPSUs, including public sector banks and insurance companies, on rights basis to ensure that 51 per cent Government ownership is not diluted.
The third approved purpose will be to use the proceeds for preferential allotment of shares by CPSUs to the Government. This will be applied to all cases where a CPSU will raise fresh equity to meet its capital expenditure programme. It has also been decided to discharge the fund managers of their responsibility.
The NIF was constituted by the Cabinet Committee on Economic Affairs on January 27, 2005. The objectives structure and administrative arrangements, investment strategy were notified in November 2005, and the NIF started functioning from October 2007.
As on August 31, 2012, the corpus in NIF stood at Rs 1,814.45 crore, comprising the disinvestment proceeds of Power Grid Corporation and the Rural Electrification Corporation during 2007-08.
This corpus is, at present, invested through three public sector fund managers (SBI, LIC and UTI Mutual Funds).
shishir.sinha@thehindu.co.in