Disinvestment of IDBI Bank

Disinvestment of IDBI Bank

Subject: Economy

Section: Fiscal Policy

Context: The government on Friday said the disinvestment of IDBI Bank is on track as per the defined strategic sale process. Debunking media reports which indicated a possibility of deferment of IDBI Bank disinvestment, the Department of Investment and Public Asset Management (DIPAM) said the stake sale is in the post-EoI stage

Concept:

Disinvestment

• Disinvestment means sale or liquidation of assets by the government, usually Central and state public sector enterprises, projects, or other fixed assets.
• The government undertakes disinvestment to reduce the fiscal burden on the exchequer, or to raise money for meeting specific needs, such as to bridge the revenue shortfall from other regular sources. In some cases, disinvestment may be done to privatise assets.
• However, not all disinvestment is privatisation.
• Some of the benefits of disinvestment are that it can be helpful in the long-term growth of the country; it allows the government and even the company to reduce debt. 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.
• There is a separate department under the Ministry of Finance which handles all disinvestment-related works for the government.
• On 10 December 1999, the Department of Disinvestment was set up as a separate department and later renamed as Department of Investment and Public Asset Management.
• Disinvestment targets are set under each Union Budget, and every year the targets change. The government takes the final decision on whether to raise the divestment target or not.
• As per the latest policy, disinvestment now covers two types: (1) disinvestment through minority stake sale and (2) strategic disinvestment.
• Public Sector Undertakings are the wealth of the Nation and to ensure this wealth rests in the hands of the people, promote public ownership of CPSEs;
• In the case of disinvestment through minority stake (share) sale in listed CPSEs, the Government will retain majority shareholding, i.e. at least 51 per cent of the shareholding and management control of the Public Sector Undertakings;
• Strategic disinvestment by way of sale of substantial portion of Government shareholding in identified CPSEs up to 50 per cent or more, along with transfer of management control.

DIPAM

• Department of Investment and Public Asset Management (DIPAM) deals with all matters relating to management of Central Government investments in equity including disinvestment of equity in Central Public Sector Undertakings. The three major areas of its work relates to Strategic Disinvestment and Privatisation, Minority Stake Sales and Capital Restructuring. All matters relating to sale of Central Government equity through offer for sale or private placement or any other mode in the Central Public Sector Undertakings as well as strategic disinvestment of CPSEs is dealt with in DIPAM. DIPAM is a Department under the Ministry of Finance.