The move is aimed at taking disinvestment exercise forward

Aimed at taking the disinvestment exercise forward at a faster clip, the Cabinet Committee on Economic Affairs (CCEA), on Thursday, authorised the National Investment Fund (NIF) to buy shares of public sector undertakings (PSUs), including banks and insurance companies.

As per the string of approvals given by the CCEA at its meeting chaired by Prime Minister Manmohan Singh to align the NIF operation to enhance the disinvestment policy, the NIF will also be used to recapitalise public sector banks (PSBs) and state-owned insurance companies.

According to an official release here, 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to the existing ‘public account’ under the head National Investment Fund (NIF), and they would remain there until withdrawn/invested for the approved purposes.

The NIF, the release said, 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 a rights basis so as to ensure that 51 per cent ownership of the government is not diluted.”

Alongside, the Fund will also be utilised for issuing “preferential allotment of shares of the CPSE to promoters as per the Securities and Exchange Board of India SEBI (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 going to raise fresh equity to meet its capital expenditure programme.” Fund managers now managing the NIF will stand discharged of their responsibility from the date the funds and the interest income are transferred to the NIF, it said.

Set up in 2005, the NIF is being hitherto managed by three fund managers — UTI Asset Management Company, SBI Funds Management Company and LIC Mutual Fund Asset Management Company.

Essentially, while about 75 per cent of the income from NIF is being used to fund select social sector programmes, the balance amount is utilised to meet the capital investment requirements of profitable PSUs and revival of sick state-owned units. However, following the global meltdown and its impact on the domestic economy, the government, in November, 2009, decided to utilise the disinvestment proceeds only for social sector spending.

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