The Finance Ministry pared the disinvestment target for 2023-24 to a nine-year low of ₹51,000 crore and publicly acknowledged the multiple challenges it is facing in privatising public sector enterprises (PSEs) and raising funds through minority stake sales, a drive that has stalled since Air India’s sale.

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.

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.
  • Disinvestment also encourages private ownership of assets and trading in the open market.
  • If successful, it also means that the government does not have to fund the losses of a loss-making unit anymore.

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
  • Significance of disinvestment:
  • Financing the surged fiscal deficit
  • Raising funds to enable large-scale infrastructural development
  • Investing in the economy to boost consumer spending
  • Initiating social programmes pertaining to education and health
  • Reducing government debt (as about 40% of the Centre’s revenue receipts are spent on repaying public debt/interest)

Why does the government undertake disinvestment?

  • Minority disinvestment, majority disinvestment, and complete privatisation are the three main approaches to disinvestment.
  • On fruition of minority disinvestment, the government retains a majority in the company, typically greater than 51%, thus ensuring management control.
  • In the case of majority divestment, the government hands over control to the acquiring entity but retains some stake whereas in complete privatisation, 100% control of the company is passed on to the buyer.

Separate Department:

  • The Union Finance Ministry has a separate department for undertaking disinvestment-related procedures called the Department of Investment and Public Asset Management (DIPAM).
  • offer of shares by an unlisted central public sector enterprise (CPSE) or the Government out of its shareholding or a combination of both to the public for subscription for the first time.

Further Public Offering (FPO):

offer of shares by a listed CPSE or the Government out of its shareholding or a combination of both to the public for subscription.

Offer for sale (OFS):

Sale of shares by Promoters through Stock Exchange mechanism.

Strategic sale:

  • sale of substantial portion of the Government share holding of a central public sector enterprise (CPSE) of upto 50%, or such higher percentage as the competent authority may determine, along with transfer of management control.
  • Institutional Placement Program (IPP)
  • only Institutions can participate in the offering.

 CPSE Exchange Traded Fund (ETF):

  • Disinvestment through ETF route allows simultaneous sale of GoI’s stake in various CPSEs across diverse sectors through single offering.
  • It provides a mechanism for the GoI to monetize its shareholding in those CPSEs which form part of the ETF basket.
  • The Centre exceeded its target in 2017-18, it earned ₹36,915 crore by selling Hindustan Petroleum Corporation Limited (HPCL) to the state-owned Oil and Natural Gas Corporation (ONGC).
  • In 2018-19, REC Limited was sold to the state-owned Power Finance Corporation Limited, through which the government raised ₹14,500 crore.
  • In 2021-22, when Air India was added to the Tata group, the Centre missed its high disinvestment target of ₹1.75 lakh crore by a significant margin, raising just ₹13,534 crore in disinvestment proceeds.
  • In the current year, a third of its budget estimate came from the delayed LIC IPO, which would have happened in the previous year if not for market volatility.
  • The sale of the 52.8% stake in Bharat Petroleum (BPCL) had to be called off in mid-2022 because almost all the bidders had withdrawn.
  • The strategic sale of Central Electronics was also shelved due to lapses in the bidding process and the Pawan Hans stake-sale did not take off as well.


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