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India could miss planned divestment targets by more than half this year

  • November 25, 2023
  • Posted by: OptimizeIAS Team
  • Category: DPN Topics
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India could miss planned divestment targets by more than half this year

Subject :Economy

Section: Fiscal Policy

Context:

India will struggle to raise even half the proceeds it had targeted from planned sales of state-run firms this year and will miss divestment targets for the fifth straight year, sources said, as elections shift government priorities.

The government may fall short of its divestment goal by Rs 30,000 crore ($3.60 billion) in 2023/24, two government sources told Reuters. New Delhi had targeted Rs 51,000 crore from divestment proceeds for the current fiscal year that ends March, 2024.

In 2023/24, about Rs 30,000 crore of the Rs 51,000 crore target was expected through stake sales in IDBI Bank and the privatisation of state-owned NMDC Steel.

Disinvestment

  • Disinvestment or divestment refers to the selling of the assets or a subsidiary such as a Central or State public sector enterprise by the government.

There are three key approaches to disinvestment which include:

  • Minority disinvestment: The government despite restoring to disinvestment still retains majority shares in the company usually greater than 51%.
  • With respect to minority disinvestment, the government still holds management control.
  • Majority disinvestment: In the case of majority disinvestment, the government transfers the control to the acquiring entity and retains only some stake.
  • Complete privatisation: With respect to complete privatisation, 100% of the control of a public entity is transferred to the acquiring entity.
  • The Department of Investment and Public Asset Management (DIPAM) is a separate department working under the Union Finance Ministry which looks after disinvestment-related procedures.

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 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.

Current Disinvestment Policy

  • The new policy clearly highlights the distinction between privatization and disinvestment.
  • While sales of equity greater than 50%, maybe even 100%, is privatization, any tinkering here and there constitutes disinvestment.
  • Previous efforts at large scale sale of shares have been frequently mired in controversies and as a result, bureaucrats have developed a sort of an aversion to strategic sales.
  • In a course correction, the new disinvestment policy provides for land to be valued at market price for inclusion in sales. This will help prevent any scope for rent-seeking and reduces discretionary powers and thus enables bureaucrats to do away with the status quo.
  • NITI Aayog has been entrusted to come up with new recommendations about loss-making units that can be sold, their assets valued and disposed of, and to carry out possible strategic sales.
  • Financial parameters of public sector companies, such as borrowings and operating profits, are being closely monitored to identify possibilities of share buybacks, a new kind of disinvestment the government has recently come up with.
economy India could miss planned divestment targets by more than half this year

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