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

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Disinvestment in India - Centre likely to miss disinvestment target yet again in FY 2024 Blog Image

What’s in today’s article?

  • Why in news?
  • What is Disinvestment?
  • Evolution of Disinvestment in India
  • Benefits of Disinvestment
  • Criticism of disinvestment
  • News Summary: Disinvestment in India - Centre likely to miss disinvestment target yet again in FY 2024
  • Key highlights: Centre likely to miss disinvestment target yet again in FY 2024

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 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.

Q1) What is Department of Investments and Public Asset Management (DIPAM)?

The Department of Investment and Public Asset Management (DIPAM) is a department under the Ministry of Finance that manages the government's holdings in state-owned enterprises. 

Q2) What is Public Sector Undertaking (PSU)? 

Public Sector Undertakings (PSU) or Public Sector Enterprises (PSE) in India are government-owned enterprises in which 51 percent or more share capital is held by the Government of India or state governments or Joint venture between multiple Public Sector Enterprises.


Source: Disinvestment fetches over Rs 4.20 lakh cr in 10 years but target to be missed again in FY24 | DIPAM | Financial Express | Economic Times