Disinvestment Good or bad ?

 What is disinvestment ? 

Disinvestment means sale or liquidation of assets by the government . 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 privatize assets. However, not all disinvestment is privatization. 

Benefits of disinvestment 

1. Helpful in the long term growth of the country

2. Allows govt to reduce the debt

3. It allows larger share of PSU ownership i nthe open market , which in turn allows for the development      of a strong capital market in India.

4. Reducing fiscal burden on ex -chequer

5. Improving public finances

6. Encouraging private ownership


All disinvestments are not privatization 

Whenever Govt desires it may sell whole enterprise or majority stake it to private enterprise . In such case we call it as privatization where ownership changes hands .Govt usually avoid this , The government mostly retains more than half of the stake in the public sector enterprise so that the control remains in its hands.

Recently Govt has approved the creation of Special Purpose Vehicle (SPV) for disinvestment of Air India and its subsidiaries. 

Same way disinvestment in LIC is not privatizing . Govt is proposed to sell its stake around 5-10 percent . This fund raising helps govt to reduce its debt . 

Disinvestment started after the economic reforms of 1991 .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.

Disinvestment can be done under the percentage of shares sold. When govt sell more than 50 percent of stocks it results in privatization ( Govt usually avoid to do this) . whereas as when less then 50 percent stakes sold govt retains the control of the enterprise . 

Many PSUs have inefficient management and are incurring losses . Disinvestment helps to improve efficiency of such enterprises . These will be governed by professionals and instead of bureaucrats It also helps public enterprise to attract private foreign investment for setting up joint ventures which is better than commercial borrowings from abroad .


Conclusion 

Govt needs resources for development and it has gone ahead with the disinvestment , also govt claims it will protect workers while selling stake , it ensures VRS is introduces in the firm and compensation is provided to them . Profit making PSUs must be provided with full resources and better management and sick or loss making PSUs should be privatized or closed . 

 

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