Government to use divestment proceeds for investment

Proceeds from divestments in state-owned enterprises will now be utilised for capital requirements of central public sector enterprises, including public sector banks, rather than financing selected social sector schemes as initially planned.

The cabinet committee on economic affairs today said a realignment of the National Investment Fund (NIF) created from the proceeds by sale of equity in state-run would enhance its divestment policy.

Proceeds from divestment of government equity in state-run entities will be credited to a separate head called the `National Investment Fund (NIF) under the existing `public account' from the 2013-14 fiscal year and the funds would remain there until withdrawn or invested for the approved purposes.

The NIF will be used for subscribing to the shares being issued by the central public sector enterprise (CPSE), including public sector banks (PSBs) and public sector insurance companies, on rights basis so as to ensure that 51 per cent ownership of the government is not diluted, according to a CCEA statement released today.

CPSEs may also make preferential allotment of shares to promoters as per Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2009, so that government shareholding does not go down below 51 per cent, in all cases where the CPSE is raising fresh equity to meet its capex programme.

Fund managers currently managing the divestment funds will cease to hold the NIF from the date these funds and the interest income thereto are transferred to the separate NIF.