Published: 4th Aug, 2020
Recently, the Ministry of Finance announced that the government is working on completing the stake sale process of about 23 public sector companies whose divestment had already been cleared by the Cabinet.
Context
Recently, the Ministry of Finance announced that the government is working on completing the stake sale process of about 23 public sector companies whose divestment had already been cleared by the Cabinet.
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What is 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.
Key-highlights
- The government, as part of the Aatmanirbhar Bharat package, had announced opening up of all sectors for private participation.
- The final call as to the sectors which are going to be called ‘strategic’ has not been made yet, that has to be announced yet.
- This would lead to a consolidation of public sector undertakings (PSUs).
- About disinvestment plans, the Minister said the government wanted to sell stakes in PSUs when they fetch the right price.
- There are already nearly 2223 such PSUs which have been cleared by the Cabinet for disinvestment. The intent is clear that at least for those which had already been cleared by the Cabinet, we will have to disinvest.
- For the 202021 fiscal, the Union government has set a disinvestment target of ?10 lakh crore.
Main objectives of Disinvestment in India:
- 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
Benefits of Disinvestment
- 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.
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