DISINVESTMENT

1. Context

In the Union Budget for 2023-24, the government has set a disinvestment target of 51,000 crores, down nearly 21% from the budget estimate for the current year and just 1,000 crores more than the revised estimate. It is also the lowest target in seven years. Moreover, the Centre has not met the disinvestment target for 2022-23 so far, having realized 31, 106 crores to date, of which, 20,516 crores or close to a third of the budgeted estimate came from the IPO of 3.5% of its shares in the Life Insurance Corporation (LIC).

2. What is Disinvestment

Disinvestment means the act of selling or liquidating assets. The process of dilution of a government's stake in a PSU (Public sector Undertaking) is disinvestment. It allows the transfer of the government's enormous public debt of PSU to the private sector. Disinvestments, in most cases, are primarily motivated by the optimization of resources to deliver maximum returns.

3. Disinvestment Policy

The government of India has decided to privatize the Public sector enterprises in a gradual and phased manner through disinvestment.
It will be done by bringing down the government's equity shares in all non-strategic public sector enterprises to 26% or lower.
The Government has decided to permit up to 49% disinvestment of equity so that the government would continue to hold 51%.

4. Goals of Disinvestment policy in India

Decrease the financial burden from the sick, loss-making PSU's
To help improve public finances.
Introduce competition and market discipline amongst enterprises.
Help in the funding of various social sector welfare initiatives.
To encourage a wider share of ownership
Reduce political interference in non-essential services.

6. Disinvestment policy in India

Focus on public sector enterprises began from the second five-year plan and industrial policy resolution, in 1956.
Disinvestment as a policy initiative began in the wake of economic liberalization, globalization, and structural reforms launched in 1991.
PV Narasimha Rao government in 1991 initiated a disinvestment policy and announced that government would disinvest up to 20% of its equity in selected PSUs mainly through mutual funds and FIIs (Financial institutions investors).
The next phase of disinvestment allowed more individuals like FII, Employees of the Company, etc.
C Rangarajan Committee was appointed that recommended 49% of disinvestment.
Major changes associated with disinvestment occurred during the regime of Atal Bihari Vajpayee that involved stake sales in Paradeep Phosphates, Hindustan Zinc, and BALCO.
National Investment Fund (2005) was formed to which the funds raised from disinvestment were channeled.
A new disinvestment policy was envisioned to utilize the investments in new projects. The Department of Disinvestment was renamed the "Department of Investment and Public Asset Management" (DIPAM).

7. Recent trends in Disinvestment Policy

The government has revised its disinvestment estimate for the current financial year to ₹78,000 crores, down from ₹1.75 lakh crore envisaged in the budget estimate (BE) on February 1 last year, which is a 55.4% reduction
The disinvestment target for 2022-23 is Rs 65,000 crore. This is 17% lower than the revised estimate of 2021-22 (Rs 78,000 crore).
So far, the total disinvestment government proceeds are ₹12,029.9 crore, which includes ₹2,700 crore receipt from Air India privatization and a balance of ₹9,330 crores through the sale of minority stakes in CPSEs.
In the current financial year (2022), major disinvestments planned include the IPO of LIC, Bharat Petroleum Corporation Ltd (BPCL), RINL, and Pawan Hans.

8. Which CPSEs are likely to see disinvestment?

The center is not going to add new companies to the list of CPSEs to be divested in 2023-24 and the aspirational divestment of two public sector banks and one general insurance firm announced in the budget two years ago, will also not be a part of the plan.
According to DIPAM, the government has decided to stick to the already-announced and planned privatization of state-owned companies.
Incidentally, the disinvestment of Bharat Petroleum Corporation Limited, SCI, and ConCor had been approved by the government in 2019 but has not gone through yet.

For Prelims & Mains

For Prelims: Disinvestment, Life Insurance Corporation (LIC), Initial Public Offerings (IPO), Public sector Undertaking (PSU), Financial institutions investors (FII), Department of Investment and Public Asset Management (DIPAM) and Budget estimate (BE).

For Mains: 1. What do you understand by disinvestment? Critically examine the policy of disinvestment in India.

Source: The Hindu

Share to Social

UPSC Article