• 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).

What exactly is disinvestment?

  • 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.

Objectives of disinvestment

  • The following main objectives of disinvestment were outlined:
  • To reduce the financial burden on the Government.
  • To improve public finances.
  • To introduce, competition and market discipline.
  • To fund growth.
  • To encourage wider share of ownership.
  • To depoliticize non-essential services.

Institutional framework

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

Why need disinvestment?

  • 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:

  • Large-scale infrastructure development financing
  • Investing in the economy in order to stimulate spending
  • For social programmes such as health care and education

In India, how has disinvestment fared?

  • 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.

CPSE problems over the years

  • 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.

@the end

  • 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.
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