Why in news?

• As the upcoming general elections approach, the government is slowing down its push for privatization.
• They are cautious about criticism for selling valuable assets and are choosing to sell only a portion of their ownership on stock exchanges instead of fully privatizing.
• As a result, the disinvestment target for current fiscal year is again likely to be missed.

What’s in today’s article?

• Disinvestment in India
• News Summary

What is Disinvestment?

• About
  • Disinvestment means sale or liquidation of assets by the government, usually Central and state public sector enterprises, projects, or other fixed assets.
  • In some cases, disinvestment may be done to privatise assets. However, not all disinvestment is privatisation.
    • In complete privatisation, 100% control of the company is passed on to the buyer.
• Objectives
  • Reducing the fiscal burden on the exchequer
  • Improving public finances
  • Encouraging private ownership
  • Funding growth and development programmes
  • Maintaining and promoting competition in the market

Evolution of Disinvestment in India

• Disinvestment in India began in 1991-92 when 31 selected PSUs were disinvested for Rs. 3,038 crores.
  • The term ‘disinvestment’ was used first time in Interim Budget 1991.
• Later, Rangarajan committee, in 1993, emphasised the need for substantial disinvestment.
• The policy on disinvestment gathered steam, when a new Department of Disinvestment was created in 1999, which became a full Ministry of Disinvestment in 2001.
• But in 2004, the ministry was shut down and was merged in the Finance ministry as an independent department.
• Later, the Department of Disinvestments was renamed as Department of Investments and Public Asset Management (DIPAM) in 2016.
  • Now, DIPAM acts as a nodal department for disinvestment.

Benefits of Disinvestment

• Helps government with the money
  • Govt also uses disinvestment proceeds to finance the fiscal deficit, to invest in the economy and development or social sector programmes.
• Beneficial for long term growth of the country
  • As it allows the government and even the company to reduce debt.
• Encourages private ownership of assets and trading in the open market.
  • Private ownership of assets often brings efficiency and increases the profitability.
    • E.g., Hindustan Zinc was acquired by Vedanta in 2022. Since then, it has seen 100 fold increase in profits on the back of six fold expansion in capacities.
• Often releases large amount of public resources
  • Disinvestment releases large number of public resources (tangible & intangible both) such as manpower, assets etc.
  • These resources can be re-deployed in high priority social sector.

Criticism of disinvestment

• Loss of regular payments to the government
  • Profit making PSUs pay dividend to the govt at regular interval.
• Can create private monopoly
  • Disinvestment might create private monopoly in place of public monopoly.
    • E.g., Disinvestment of VSNL to TATA, IPCL to Reliance
• Vague classification of strategic and non-strategic sectors
• Many proponents claim that govt should retain its presence in strategic sector while going for disinvestment in non-strategic sectors.
• However, the classification of strategic and non-strategic sector is not done properly.
• E.g., Strategic disinvestment in Oil sector might threaten the energy security of India.
• Faulty model
  • Using disinvestment funds to bridge the fiscal deficit has been termed as a faulty model by many analysts.
  • It is equivalent to selling family silver to meet short term goals.

News Summary: Disinvestment in India - Centre likely to miss disinvestment target yet again in FY 2024

• Plans to privatize major entities like Bharat Petroleum Corporation Ltd (BPCL), Shipping Corporation of India (SCI), and CONCOR have been put on hold.
• Experts believe that substantial privatization may only resume after the general elections in April or May.

Key highlights: Centre likely to miss disinvestment target yet again in FY 2024

• Target and achievements so far in the current fiscal
  • In the current fiscal, out of the budgeted amount of Rs 51,000 crore, about 20 per cent or Rs 10,049 crore has been collected through minority stake sales.
    • According to the recently release Economic Survey report, about ₹4.20 lakh crore has been realised as disinvestment proceeds in the past ten years.
    • So far, different central governments over the last three decades have been able to meet annual disinvestment targets only six times.
• Multiple challenges in 2023
• After the successful privatisation of the then loss-making Air India to Tata group and NINL to TSLP in 2022, the government was hopeful of going ahead with more CPSE divestments and reaching a quick conclusion.
• However, 2023 has no good news on the strategic sale front.
• The difficulties involved in the strategic sale process, with the involvement of multiple stakeholders, make the task at hand a long drawn affair.
• Principle followed by the govt
  • A fundamental principle behind the government's policy in the post-2014 period has been the engagement with the private sector as a partner in the development process.
  • The government's disinvestment policy has been revived in the last eight years with stake sales and the successful listing of Public Sector Enterprises on the stock market.