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The launch of National Monetisation Pipeline (NMP) 2.0 and declining emphasis on strategic disinvestment in recent budgets indicate a shift in India’s public sector reform strategy from privatisation to asset monetisation and dividend-based revenue generation.

UPSC Relevance:

GS-III: Public Sector & Fiscal Policy Infrastructure

Background:

In 2020–21, the Government of India announced a strong push toward privatisation and strategic disinvestment of Public Sector Enterprises (PSEs). The government clearly stated that it would exit non-strategic sectors and reduce its role in business activities.

However, in recent years, the government’s approach has changed. Instead of selling public sector companies outright, the focus has shifted toward:

• Leasing public assets to private players (asset monetisation)
• Increasing dividend income from public sector companies

The launch of the National Monetisation Pipeline (NMP) 2.0 confirms this policy shift.

This indicates that India’s public sector reform strategy is evolving from “ownership transfer” to “value extraction without ownership transfer.”

What is Disinvestment?

Disinvestment means the government sells a part of its ownership in a public sector enterprise.

For example, if the government owns 100% of a company and sells 20% to private investors, it is called disinvestment.

Disinvestment can be of two types:

1. Minority disinvestment – Government sells some shares but keeps management control.
2. Strategic disinvestment – Government sells majority stake and transfers management control to private players.

Strategic disinvestment is equivalent to privatisation.

Evolution of Disinvestment Policy in India

Phase 1: Early Reforms after 1991

• After economic liberalisation in 1991, India faced a severe fiscal crisis. The government started selling small portions of shares in public sector companies to raise revenue.
• During this period:
  • The government did not transfer management control.
  • The main objective was to raise funds to reduce fiscal deficit.
  • Public sector companies continued to remain under government control.
• Thus, this phase was cautious and revenue-oriented.

Phase 2: Strategic Disinvestment (1999–2004)

• During this period, the government became more aggressive and started selling majority stakes in certain public sector enterprises.
• In some companies, management control was transferred to private players.
• The objective shifted from merely raising revenue to improving efficiency by bringing in private management.
• However, this approach faced political resistance and was later slowed down.

Phase 3: Slowdown Period (2004–2014)

• During this period, there was limited enthusiasm for privatisation.
• The government mainly focused on minority stake sales rather than strategic disinvestment.
• Public sector enterprises were viewed as instruments of social and developmental policy, not merely commercial entities.

Phase 4: Renewed Privatisation Push (2020–21)

• In 2020, the government announced a clear policy direction:
• “Government has no business to be in business.”
• Under the Public Sector Enterprises Policy (2021), the government declared that:
  • It will exit non-strategic sectors.
  • In strategic sectors, only a minimum number of public sector enterprises will remain.
  • Strategic disinvestment will be encouraged where private sector capacity exists.
• This appeared to be a strong move toward privatisation.

Why Did Privatisation Slow Down?

Despite strong announcements, actual disinvestment revenues started declining.

Disinvestment proceeds were:

• ₹35,294 crore in 2022–23
• ₹16,507 crore in 2023–24
• ₹10,163 crore in 2024–25
• ₹15,562 crore (so far) in 2025–26

There are several reasons for this slowdown.

• First, many public sector enterprises have large employee numbers and legacy liabilities. Private investors are hesitant to take over such companies.
• Second, some enterprises are loss-making and structurally inefficient, making them unattractive.
• Third, privatisation often faces political opposition and labour resistance.
• Fourth, market conditions and global economic slowdown reduced investor appetite.

Because of these constraints, large-scale strategic disinvestment became difficult.

Increasing Focus on Dividend Income

As privatisation slowed, the government began focusing on extracting higher dividends from public sector companies.

The Department of Investment and Public Asset Management (DIPAM) issued guidelines asking CPSEs to:

• Pay higher dividends.
• Use excess cash reserves efficiently.
• Balance capital expenditure with profitability.

As a result, dividend income increased significantly.

Dividend receipts rose from ₹39,750 crore in 2020–21 to ₹74,128 crore in 2024–25.

In fact, dividend income is now much higher than disinvestment proceeds.

This indicates that the government prefers steady annual income rather than one-time asset sales.

Asset Monetisation: The New Strategy of the Govt

Instead of selling companies, the government now focuses on leasing public infrastructure assets.

This approach is called asset monetisation.

In 2021, the government launched the National Monetisation Pipeline (NMP).

The key principle of NMP is:

Ownership of assets remains with the government, but private players are allowed to operate them for a fixed period in return for payment.

Examples of assets under monetisation:
• Highways
• Railway freight corridors
• Airports
• Power transmission lines
• Telecom towers

The first phase (2021–25) had a target of ₹6 lakh crore, and around 90% of the target was achieved.

Now, NMP 2.0 (2025–30) has been launched with a target of ₹16.72 lakh crore, which shows massive expansion.

Why Is the Government Preferring Monetisation?

There are several reasons.

• First, monetisation generates revenue without selling ownership. This reduces political opposition.
• Second, it improves utilisation of underused or idle public assets.
• Third, it attracts private sector efficiency while keeping public ownership intact.
• Fourth, it provides relatively predictable fiscal revenue.

Thus, monetisation is politically easier than privatisation.

What Are the Risks?

Although monetisation and dividend extraction provide revenue, they have limitations.

• Excessive dividend extraction may reduce the reinvestment capacity of public sector companies. If companies distribute too much profit, they may not have enough funds for modernization and expansion.
• Asset monetisation does not solve structural inefficiencies in management. Leasing an asset does not reform corporate governance.
• There is also policy inconsistency. A shift from aggressive privatisation to monetisation may create uncertainty among investors about long-term reform direction.
• Finally, monetisation revenues depend on economic conditions and private sector interest. They are not guaranteed.

What is the Bigger Economic Interpretation?

This shift shows that India is not fully adopting a neoliberal privatisation model.

Instead, India is following a hybrid model where:

• The government retains ownership.
• The private sector participates in operations.
• The state continues to play a strategic role.

This reflects pragmatic state capitalism rather than complete withdrawal of the state from business.

Way Forward: Reforming Public Sector Strategy in a Balanced Manner

The shift toward asset monetisation and dividend extraction cannot be the final reform model. A calibrated and sustainable approach is required.

1️. Adopt a Balanced Reform Strategy

India should not abandon privatisation completely. Instead:

• Strategic disinvestment should continue in loss-making and non-strategic sectors.
• Monetisation should be used for brownfield infrastructure assets.
• Strategic sectors (defence, energy security, critical infrastructure) may retain calibrated government presence.

A mix is better than an ideological extreme.

2️. Ensure Sustainable Dividend Policy

While higher dividends provide fiscal comfort, excessive extraction can:

• Reduce internal capital formation
• Weaken long-term competitiveness of CPSEs
• Force companies to borrow for expansion

Therefore:
Dividend policy must balance fiscal needs with reinvestment capacity.

3️. Strengthen Corporate Governance of CPSEs

Monetisation alone does not solve structural inefficiencies.

Reforms needed:

• Professional boards
• Reduced political interference
• Performance-linked incentives
• Greater managerial autonomy

Without governance reform, financial engineering will not improve productivity.

4️. Improve Transparency in Asset Monetisation

For NMP 2.0 to succeed:

• Transparent bidding processes
• Strong regulatory oversight
• Clear concession agreements
• Risk-sharing mechanisms

This ensures credibility and sustained investor participation.

5️. Provide Policy Stability

• Frequent shifts from privatisation → monetisation → dividend focus may create investor uncertainty.
• Government should articulate a long-term, predictable public sector roadmap.
• Policy credibility is as important as policy design.

Conclusion

India’s evolving public sector reform strategy reflects pragmatic adaptation to fiscal realities, political constraints, and market conditions. While asset monetisation and dividend extraction provide steady revenue without triggering political resistance, they cannot substitute for deeper structural reforms. Sustainable public sector transformation requires a calibrated blend of selective privatisation, efficient asset monetisation, and robust corporate governance reforms. Ultimately, the objective should not merely be revenue maximisation, but the creation of productive, competitive, and strategically aligned public enterprises that contribute to long-term economic growth.

Practice Questions:

With reference to Disinvestment in India, consider the following statements:

1. Strategic disinvestment involves transfer of management control to private players.
2. Minority disinvestment always results in loss of government ownership.
3. Disinvestment receipts are classified as capital receipts in the Union Budget.

Which of the statements given above is/are correct?

(a) 1 and 3 only
(b) 1 only
(c) 2 and 3 only
(d) 1, 2 and 3

Answer: (a) 1 and 3 only

With reference to Asset Monetisation, consider the following statements:

1. It involves permanent transfer of ownership of public assets.
2. It is primarily applicable to brownfield infrastructure assets.
3. It generates recurring revenue for the government.

Which of the statements given above is/are correct?

(a) 2 and 3 only
(b) 1 and 2 only
(c) 1 and 3 only
(d) 1, 2 and 3

Answer: (a) 2 and 3 only

Mains question:

Critically analyse the evolution of India’s disinvestment policy and examine whether the current shift towards asset monetisation represents a structural reform or fiscal adjustment.

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