Status and Proceeds of Disinvestment

Context

  • In the Union Budget 2023-24, the government has set a disinvestment target of Rs. 51,000 crore which is the lowest in 7 years and 21% less than the budget estimate for the current year.

Disinvestment

  • About:
    • Disinvestment means the sale or liquidation of assets by the government like Central public sector enterprises (CPSE) and state public sector enterprises, projects, or other fixed assets.
    • There is a Department of Investment and Public Asset Management (DIPAM) under the Ministry of Finance for disinvestment which set the targets under each Union Budget
    • The government then takes the final decision on whether to raise the divestment target or not.
  • Objectives: 
    • Reducing Fiscal Burden: The government undertakes disinvestment to reduce the fiscal burden on the exchequer.
    • Improving Public Finances: To raise money for meeting specific needs, such as to bridge the revenue shortfall from other regular sources.
    • Encourage Private Ownership: Disinvestment may be done to privatise assets. However, not all disinvestment is privatisation.
  • Significance & Benefits:
    • Disinvestment allows a larger share of PSU ownership in the open market, which in turn allows for the development of a strong capital market in India.
    • Disinvestment proceeds can be used to finance the fiscal deficit, to invest in the economy and development or social sector programmes.
    • It allows the government and even the company to reduce debt which means the government does not have to fund the losses of a loss-making unit anymore. Eg. Air India
    • It can be helpful in the long-term growth of the country.

Strategic Disinvestment, Disinvestment & Privatisation

  • Strategic Disinvestment: It implies the sale of a substantial portion of the government shareholding of a CPSE of up to 50%, or such higher percentage as the competent authority may determine, along with transfer of management control.
    • In Disinvestment the government sells minority shares of public enterprises to another entity and retains ownership of the enterprise.
    • In Strategic disinvestment/sale, the government sells majority shares in an enterprise and gives up the ownership of the entity as well.
  • Majority Disinvestment: It refers to complete privatisation wherein 100 percent control goes to the private sector.
  • Minority Disinvestment: The government retains a majority in the company, typically greater than 51%, thus ensuring management control.
  • Privatisation: The government whenever it so desires, may sell a whole enterprise or a majority stake in it to private investors. This is known as privatisation where the resulting ownership and control of an organisation does not rest with the government.

Timeline of Disinvestment

  • Post independence the government passed the Constitution (First Amendment) Act, 1951, following which nationalisation of private firms became a standard policy tool by the government.
  • This led to nationalisation of airlines, insurance businesses, and banking systems through the Air Corporations Act, 1953; Life Insurance Corporation Act 1956, Banking Companies (Acquisition and transfer of Undertakings) Act, 1970, etc.
  • After the 1991 LPG reforms, there was a transition in thinking about the public and private sector. The policy formulation gathered steam lately in 2001 when a separate ministry for disinvestment came into being. 
  • The process of disinvestment continued intermittently over the next decade 2004-2014. After 2014, the disinvestment policy was renewed with stake sales in PSEs.
  • Against this backdrop, New Public Sector Enterprise (PSE) Policy for Atmanirbhar Bharat was notified in 2021.

New Public Sector Enterprise Policy (PSE),2021

  • The policy intends to minimize the presence of the Government in the PSEs across all sectors of the economy.
  • Under the new PSE policy, public sector commercial enterprises have been classified as Strategic and Non-Strategic sectors.
  • Four broad strategic sectors have been delineated:
    • Atomic Energy, Space and Defense
    • Transport and Telecommunication
    • Power Petroleum, Coal, and other minerals
    • Banking, Insurance, and Financial Services
  • Non-Strategic Sector: In this sector, CPSEs will be privatised, otherwise shall be closed.
  • Moving forward task: Further to fast forward the policy, NITI Aayog has been asked to work out the next list of Central Public Sector companies that would be taken up for strategic disinvestment.
  • Incentivising states for disinvestment: To incentivise States to take to disinvestment of their Public Sector Companies, an incentive package of Central Funds for them will be worked out.
  • Special purpose vehicle (SPV) for monetising idle land: The SPV will contribute towards Atmanirbhar Bharat by monetising the non-core assets largely consisting of surplus land with the Ministries and PSEs.

 

Disinvestment in Recent years

  • Different central governments over the last three decades have been able to meet annual disinvestment targets only six times.
  • In 2017-18, the government earned disinvestment receipts of a little over ?1 lakh crore as against a target of ?72,500 crore, and in 2018-19, it brought in ?94,700 crores when the target was set at ?80,000 crores.

  • In recent years, in cases of strategic disinvestment its stake was sold to another public sector enterprise.
    • When the Centre exceeded its target in 2017-18, it earned ?36,915 crores by selling Hindustan Petroleum Corporation Limited (HPCL) to the state-owned Oil and Natural Gas Corporation (ONGC).
  • In 2021-22, the Centre missed its high disinvestment target of ?1.75 lakh crore by a significant margin, raising just ?13,534 crores in disinvestment proceeds.
  • The Strategic sale in many firms was called off due to a lack of bidders and lapses in the bidding process. Eg. BPCL and Central electronics.

Source: TH

 

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