Disinvestment — Balanced Report

The government has set a disinvestment target of 51,000 crore in the Union Budget for 2023-24, which is nearly 21% lower than the budget estimate for the current year and only 1,000 crore higher than the revised estimate.
Lowest Disinvestment target in years
It’s also the lowest target in the last seven years.
So far, the Centre has not met the disinvestment target for 2022-23.
To date, it has realised 31,106 crore, of which 20,516 crore, or nearly one-third of the budgeted amount, came from the IPO of 3.5% of its shares in the Life Insurance Corporation (LIC).

In this context, disinvestment or divestment occurs when the government sells its assets or a subsidiary, such as a Central or State public sector enterprise.
Disinvestment can be approached in three ways.
Disinvestment by minorities: The government owns a majority of the company, usually more than 51%, ensuring management control.
Majority disinvestment occurs when the government transfers control to the acquiring entity while retaining a stake.
Complete privatisation: the buyer receives complete control of the company.

The Department of Investment and Public Asset Management is a separate department within the Union Finance Ministry that handles disinvestment-related procedures (DIPAM).

Reduce money crunch: The government may disinvest in order to reduce the fiscal burden or bridge the revenue shortfall for that year.
Deficit financing: It also uses disinvestment proceeds to finance the fiscal deficit, to invest in the economy and development or social sector programmes, and to retire government debt.
Facilitate private ownership: Disinvestment encourages private ownership of assets and open market trading.
Eliminate loss-making: If successful, the government will no longer be required to fund the losses of a loss-making unit.

Another significance of disinvestment is the use of funds for:

Since taking office in 2014, the current government has made significant progress in disinvestment, raising a record 1.05 trillion (US$14.6 billion) for the fiscal year 2017-18.
However, the government has failed to meet its disinvestment targets in previous years for a variety of reasons, including market conditions, investor sentiment, and political opposition.
The government has also been chastised for failing to do enough to find potential buyers for state-owned enterprises.
Despite this, several successful disinvestment transactions have occurred in recent years, including the strategic sale of Air India and the privatisation of BPCL.

Inherent flaws in power supplies: Because of the prevalent hierarchy and bureaucracy, the entire PSU mechanism was not as efficient as it should have been.
Lack of autonomy: The situation has worsened due to a lack of autonomy, political interference, nepotism, and corruption.
Revenue losses: As a result of spending on items such as interest payments, PSU employee wages and salaries, and subsidies, the government has little left over for capital expenditure on social and physical infrastructure.
Lack of Competitiveness: In an era of LPG, industrial competitiveness has taken on a new significance, necessitating the privatisation or disinvestment of PSUs.
Poor performance: Despite massive infusions of funds in recent decades, many public sector units (PSUs) have traditionally been characterised by poor management, slow decision-making procedures, lack of accountability, low productivity, unsatisfactory quality of goods, excessive manpower utilisation, and so on.

With an unprecedented fiscal deficit and an economy in crisis, the government must find resources.
For ideological and practical reasons, disinvestment is the preferred option.
Short-term financial constraints should not be the sole reason for the Centre’s disinvestment in core sectors such as petroleum.
The government could use the proceeds from the sale of PSUs to improve public services such as infrastructure, health, and education.

Source: https://www.thehindu.com/business/budget/budget-2023-no-separate-mention-of-disinvestment-proceeds/article66458237.ece