The Rangarajan Committee on disinvestment of shares in Public Sector Enterprises suggested that 1. The percentage of equity to be divested should be no more than 49% for industries explicitly reserved for the public sector and it should be either 74% or 100% for others. 2. Year-wise targets of disinvestment should be maintained. Which of the above statements is/are correct ?

Correct — A, (a) 1 only.

The Committee referred to is the one appointed under Dr C. Rangarajan to frame guidelines for the disinvestment of shares in public sector enterprises, which reported in 1993. Take the two statements separately.

STATEMENT 1 — the percentages. CORRECT. The Committee's best-documented recommendation is exactly this: the proportion of equity to be divested should be limited in industries EXPLICITLY RESERVED for the public sector and should be much larger, up to the whole of the Government's holding, in every other industry. The reason for the split is control, not revenue. In a reserved industry the State intends to remain the operator, so its holding must stay above the level at which management control passes — which is why the Committee also recommended a target level of Government ownership of 51 per cent in units reserved for the public sector, with a lower level of 26 per cent contemplated only in exceptional cases. Outside the reserved industries there is no such constraint, so a much larger disinvestment, and in principle a complete exit, becomes possible.

STATEMENT 2 — year-wise targets. NOT AMONG THE COMMITTEE'S RECOMMENDATIONS. What the Committee recommended, besides the percentages, concerned the manner and the safeguards of disinvestment rather than a schedule: that the units to be disinvested should be identified and disinvestment could be made up to any level EXCEPT in defence and atomic energy, where the Government should retain a majority holding in equity; that disinvestment should be a transparent process duly protecting the rights of the workers; and that an autonomous body should be established for the smooth functioning and monitoring of the disinvestment programme. A year-by-year target is not part of that scheme. Annual disinvestment targets are a feature of BUDGET practice — the figure that appears each year among non-debt capital receipts — rather than of this Committee's report, and the Committee's own emphasis on identifying units and creating an autonomous body to run the programme points towards a process driven by readiness rather than by a calendar.

Only statement 1 stands, so the answer is option (a).

This item is one of about a dozen on the booklet that print the question sentence AFTER the numbered statements — 'Which of the above statements is/are correct ?' — with no line inviting selection from codes given below, and it answers with the 'Both 1 and 2 / Neither 1 nor 2' pair rather than with numeric codes. That is a normal layout on this paper. The percentages are printed with no space before the sign, and 'is/are' with a solidus and no spaces.

Why the others are wrong

• (b)2 only — This inverts the item completely: it rejects the recommendation the Committee is actually remembered for and accepts one it did not make. The percentage split between reserved and non-reserved industries is the substantive core of the report and the thing every summary of it records; the reasoning behind it — that a holding must stay above the control threshold where the State means to keep running the enterprise — is what makes it a coherent recommendation rather than an arbitrary number. Choosing this option means treating a scheduling proposal as the report's content and its central policy recommendation as an error.
• (c)Both 1 and 2 — This accepts the correct statement and adds the one that is not part of the Committee's recommendations. It is the natural landing place for a candidate who knows the percentages, cannot recall anything about targets, and reasons that a committee on disinvestment would surely have wanted the programme scheduled. That reasoning is backwards: the question is what this Committee recommended, not what a committee on the subject might plausibly recommend. Where a statement sounds like a reasonable thing for a body to have said but cannot be attached to anything it actually said, it is safer to leave it out.
• (d)Neither 1 nor 2 — This rejects both, including the percentage recommendation that is the Committee's single most cited contribution. It is the option for a candidate who cannot place the Committee at all and prefers to deny everything, and on a two-statement item that strategy has the same expected value as any other. It is worth noting that the 'Both 1 and 2 / Neither 1 nor 2' pair, which this paper uses instead of numeric codes on several items, does not change how the question should be worked: adjudicate each statement on its own, then read off the option that matches, exactly as with a coded list.

THE RANGARAJAN COMMITTEE ON DISINVESTMENT sits at the beginning of India's disinvestment policy. The 1991 reforms had opened the question of what the Government should do with its very large holdings in public sector enterprises, and a committee under Dr C. Rangarajan was appointed to develop guidelines. It reported in 1993, and its recommendations set the frame for the decade that followed.

WHAT IT RECOMMENDED, as recorded: A percentage limit on divestment in industries explicitly reserved for the public sector, with a much higher and potentially complete divestment permitted elsewhere. A target level of Government ownership of 51 per cent in units reserved for the public sector, so that management control is retained, with 26 per cent contemplated in exceptional cases. Disinvestment up to any level in the units identified, EXCEPT in defence and atomic energy, where the Government should retain the majority holding in equity. A transparent process that duly protects the rights of the workers. An autonomous body for the smooth functioning and monitoring of the disinvestment programme.

WHY 51 PER CENT IS THE HINGE. Control of a company follows from holding more than half its voting equity. A Government that sells down to 51 per cent has raised money and widened share ownership while remaining the controlling shareholder; a Government that goes below it has given up the power to appoint the board and direct the enterprise. Every percentage in disinvestment policy is fixed by reference to that threshold, which is why the reserved and non-reserved cases are treated differently.

WHAT CAME LATER. The institutional recommendation was eventually acted on: a separate Department of Disinvestment was created and later renamed the Department of Investment and Public Asset Management. Policy moved through minority stake sales, then strategic sales with transfer of management control, then back towards minority sales, and the Budget has carried an annual disinvestment receipts figure throughout — which is where the idea of year-wise targets belongs.

DR C. RANGARAJAN himself is worth knowing as a recurring name: Governor of the Reserve Bank of India in the 1990s, later Chairman of the Prime Minister's Economic Advisory Council, and chairman of the expert group that reported on the measurement of poverty in 2014. Papers of this kind ask about at least one of those roles regularly.

Key facts

• The Rangarajan Committee on disinvestment of shares in public sector enterprises, under Dr C. Rangarajan, reported in 1993.
• It recommended a limited percentage of equity divestment in industries explicitly reserved for the public sector and a much larger, potentially complete divestment in other industries.
• It recommended a target level of Government ownership of 51 per cent in units reserved for the public sector so that management control is retained, with 26 per cent contemplated in exceptional cases.
• It recommended that disinvestment could be made up to any level in identified units EXCEPT in defence and atomic energy, where the Government should retain the majority holding in equity.
• It recommended that disinvestment be a transparent process duly protecting the rights of the workers, and that an autonomous body be established for the functioning and monitoring of the programme.
• Control of a company follows from holding more than half the voting equity, which is why 51 per cent is the threshold around which disinvestment percentages are fixed.
• Annual disinvestment targets belong to Budget practice, where the receipts figure appears among non-debt capital receipts, rather than to this Committee's report.
• Dr C. Rangarajan was later Governor of the Reserve Bank of India, Chairman of the Prime Minister's Economic Advisory Council, and chairman of the 2014 expert group on the measurement of poverty.

Common traps

• Accepting a statement because it sounds like something the committee might reasonably have said. The question is what it did say.
• Confusing this Committee's recommendations with later Budget practice. Annual disinvestment targets belong to the second.
• Rejecting the percentage recommendation, which is the Committee's single most cited contribution.
• Treating a 'Both / Neither' option pair as a different kind of question. It is worked exactly like a coded statement list.

• practice — not a real PYQ

  Which of the following did the Rangarajan Committee (1993) recommend in respect of disinvestment ?

  • (a)That the Government should retain a majority holding in equity in defence and atomic energy
  • (b)That all public sector undertakings should be privatised within five years
  • (c)That disinvestment proceeds should be used only to retire public debt
  • (d)That disinvestment should be confined to loss-making enterprises

  Answer(a) That the Government should retain a majority holding in equity in defence and atomic energy — the Committee recommended that identified units could be disinvested up to any level, with defence and atomic energy expressly excepted. It also recommended a transparent process protecting workers' rights and an autonomous body to run and monitor the programme.

• practice — not a real PYQ

  For the Government to retain management control of a public sector undertaking, its shareholding must generally be kept at not less than

  • (a)26 per cent
  • (b)33 per cent
  • (c)49 per cent
  • (d)51 per cent

  Answer(d) 51 per cent — control of a company follows from holding more than half its voting equity, which allows the shareholder to appoint the board and direct the enterprise. A 26 per cent holding confers only the power to block special resolutions, which is why the Rangarajan Committee contemplated it as an exceptional rather than a normal level.