Hard pressed for funds, the government on Thursday approved the proposal for expediting disinvestment through the buyback route under which blue chip state-owned companies will buy its stake.

The decision to allow Public Sector Undertakings (PSUs) to buyback shares was taken by the Cabinet headed by Prime Minister Manmohan Singh, sources said

The proposal will allow the government, which has not been able to reach anywhere near the disinvestment target of Rs 40,000 crore in 2011-12, to raise funds by selling its stake in the PSU to the same undertaking.

The government till date it has been able to raise only Rs 1,145 crore from PFC. Its sale of stake in ONGC through the auction route may fetch another Rs 12,000-13,000 crore.

Market regulator Securities and Exchange Board of India (Sebi) had earlier relaxed norms for buyback of shares and dilution of equity by companies.

The new norms would help the companies to complete the process of selling shares within days against the normal process which can take months.

Besides reducing the timeline for completion of buyback of shares by companies to 34-44 days, Sebi had also introduced a new mechanism called Institutional Placement Programme (IPP) that would allow promoters to sell up to 10 per cent of their capital through an auction.