The government owns many companies, such as banks, oil firms and power companies. These are called public sector enterprises. Sometimes the government sells part of its share in them. This is called disinvestment. The best-run companies also get special status as Maharatna, Navratna or Miniratna. Exams ask about these terms, the bodies involved and the key dates. This post explains them in simple words. It ends with 15 previous year questions.
Key Points (Quick Revision)
- Disinvestment means the government selling part or all of its stake in a public sector enterprise.
- Disinvestment in India began in 1991-92, as part of the economic reforms.
- The department in charge is DIPAM, the Department of Investment and Public Asset Management. It got this name in 2016.
- Navratna and Miniratna status began in 1997. Maharatna status began in 2009.
- Maharatna is the highest of the three categories.
1. What is disinvestment?
When the government sells its shares in a company it owns, it is called disinvestment. It is the opposite of investment.
There are two main kinds:
- Minority disinvestment - the government sells a small part. It still holds more than 50% and keeps control.
- Strategic disinvestment - the government sells a large share, often 50% or more, along with management control, to a buyer.
Shares may be sold through methods such as an initial public offering (IPO), an offer for sale (OFS), or an exchange traded fund (ETF) of public sector shares.
2. Why does the government disinvest?
- To raise money for the budget and reduce borrowing.
- To improve the efficiency of companies through market discipline.
- To let the government step back from business and focus on governance.
- To widen public ownership of shares in the stock market.
Critics say that selling profitable companies is like "selling the family silver". They also worry about job losses and loss of control over key sectors.
3. History of disinvestment in India
- 1991-92 - minority shares of some public sector companies were sold for the first time.
- 1993 - the Rangarajan Committee gave its report on disinvestment.
- 1996 - a Disinvestment Commission was set up, headed by G. V. Ramakrishna.
- 1999 - a separate Department of Disinvestment was created. It became a ministry for some years.
- 2005 - the National Investment Fund was created to hold the money raised.
- 2016 - the Department of Disinvestment was renamed DIPAM. It works under the Ministry of Finance.
- 2021 - the government announced a new public sector enterprise policy. It named a few strategic sectors where only a small number of public companies would remain.
A well-known strategic sale was Air India. It was sold to the Tata group, and the deal was completed in January 2022.
4. Maharatna, Navratna and Miniratna
The government gives these titles to central public sector enterprises (CPSEs) that perform well. The status gives the company's board more financial and operating freedom. For example, the board can make larger investments without asking the government.
| Status | Began | Level |
|---|---|---|
| Maharatna | 2009 | Highest - very large, listed, profit-making companies with a global presence |
| Navratna | 1997 | Middle - strong companies that already hold Miniratna Category I status |
| Miniratna | 1997 | Entry level - profit-making companies, in Category I and Category II |
The word Navratna comes from the "nine jewels". At first, in 1997, nine companies were given this status.
5. Who decides and what the criteria are
Each status has its own criteria, set by the Department of Public Enterprises. It now works under the Ministry of Finance.
- Miniratna - the company must have made profit in the last three years in a row and have a positive net worth.
- Navratna - the company must be a Miniratna Category I and Schedule A company, and score well on six performance measures.
- Maharatna - the company must be a Navratna, be listed on a stock exchange, and have very high average turnover, net worth and profit over three years.
The exact money limits for each status have been revised over time. The list of companies also changes as new ones are added. Check the latest list on the Department of Public Enterprises website before the exam.
6. Disinvestment vs privatisation
| Point | Disinvestment (minority) | Privatisation (strategic sale) |
|---|---|---|
| Share sold | A small part | A large part, often a majority |
| Control | Stays with the government | Passes to the buyer |
| Example of method | OFS, IPO, ETF | Sale to a chosen bidder |
7. Previous year questions
- What is the sale of government shares in a public sector enterprise called? – Disinvestment
- In which year did disinvestment begin in India? – 1991-92
- Which committee reported on disinvestment in 1993? – Rangarajan Committee
- Who headed the Disinvestment Commission set up in 1996? – G. V. Ramakrishna
- What is the full form of DIPAM? – Department of Investment and Public Asset Management
- In which year was the Department of Disinvestment renamed DIPAM? – 2016
- DIPAM works under which ministry? – Ministry of Finance
- In which year was the National Investment Fund created? – 2005
- Which is the highest status given to central public sector enterprises? – Maharatna
- In which year was Navratna status introduced? – 1997
- In which year was Maharatna status introduced? – 2009
- A company must hold which status before it can become a Navratna? – Miniratna Category I
- What does strategic disinvestment involve along with the sale of shares? – Transfer of management control
- To which group was Air India sold? – Tata group
- What does OFS stand for in disinvestment? – Offer for Sale
8. How to revise this topic
Start with the meaning: minority disinvestment keeps control; strategic disinvestment hands over control.
Next, fix the timeline: 1991-92 start, 1993 Rangarajan Committee, 1996 Disinvestment Commission, 2005 National Investment Fund, 2016 DIPAM.
Then learn the three statuses: Miniratna and Navratna 1997, Maharatna 2009, in rising order Miniratna, Navratna, Maharatna.
Finally, keep one example ready: the Air India sale to the Tata group, completed in January 2022.
9. Frequently Asked Questions
What is disinvestment?
Disinvestment is the sale by the government of part or all of its shares in a public sector enterprise. It began in India in 1991-92 as part of the economic reforms.
What is the difference between disinvestment and strategic disinvestment?
In minority disinvestment the government sells a small share and keeps control. In strategic disinvestment it sells a large share along with management control to a buyer.
What is DIPAM?
DIPAM is the Department of Investment and Public Asset Management under the Ministry of Finance. It handles disinvestment and was given this name in 2016, replacing the Department of Disinvestment.
What are Maharatna, Navratna and Miniratna companies?
They are statuses given to well-performing central public sector enterprises. Maharatna is the highest, then Navratna, then Miniratna. The status gives the company's board more freedom to invest and decide.
When were Navratna and Maharatna statuses introduced?
Navratna and Miniratna statuses were introduced in 1997. Maharatna status was introduced in 2009.
For more Economy topics in simple language, see our Union Budget, Fiscal Policy and Fiscal Deficit and Stock Market Basics posts, or browse the Economy section. Preparing for a banking exam? Start with the RBI Grade B guide or join the 100 Hour GS Course.