Status and Proceeds of Disinvestment

Context:

In the Union Budget for 2023-24, the government has set a disinvestment target of ₹51,000 crore.

About Disinvestment:

Disinvestment involves when the government sells its assets or a subsidiary, such as a Central or State public sector enterprise.
The Department of Investment and Public Asset Management (DIPAM) under the Ministry of Finance is the nodal agency for disinvestment.

Types of Disinvestment:

Minority disinvestment: In it, the government retains a majority in the company, typically greater than 51%, thus ensuring management control.
Majority disinvestment:the government hands over control to the acquiring entity but retains some stake.
Complete privatization: In complete privatization, 100% control of the company is passed on to the buyer.

As of February 8, 2023, the government’s disinvestment receipts stood at ₹31,106.64 crores as against the budget estimate of ₹65,000 crores.
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.

According to DIPAM, the government has decided to stick to the already-announced and planned privatization of State-owned companies.
These include IDBI Bank, the Shipping Corporation of India (SCI), the Container Corporation of India Ltd (Concor), NMDC Steel Ltd, BEML, HLL Lifecare.

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Image Source: The Hindu

Need of Disinvestment:

The government may disinvest in order to reduce the fiscal burden or bridge the revenue shortfall for that year.
If successful, it also means that the government does not have to fund the losses of a loss-making unit anymore.

Political opposition: Disinvestment is often seen as a politically sensitive issue in India, as it involves selling government-owned assets to private entities.
Valuation issues: Determining the fair market value of government-owned assets can be challenging, as the valuation may depend on a range of factors such as future growth prospects, regulatory environment, and economic conditions.
Lack of investor interest: Despite the potential benefits of disinvestment, there may be a lack of investor interest in certain sectors, particularly in the case of public sector units that are seen as less profitable or less attractive investments.
Complex legal and regulatory framework: The process of disinvestment in India is governed by a complex legal and regulatory framework, which can add to the time and cost of the process.

Benefits:

Finance the fiscal deficit: Government uses disinvestment proceeds to finance the fiscal deficit, to invest in the economy and development or social sector programmes, and to retire government debt.
Encouragement of Private Ownership: Disinvestment also encourages private ownership of assets and trading in the open market.

News Source: The Hindu