What is Disinvestment?
Divestment or disinvestment refers to selling a stake in a company, subsidiary or other investments. Businesses and governments make use of disinvestment generally as a way to cut losses from a non-performing asset, exit a particular industry, or even to raise money. In simple terms, disinvestment is taking one's money out of the company that one invested in.
The concept of disinvestment is generally used with regards to Public sector Undertakings (PSUs). When the government sells its majority shares in a PSU, i.e. companies which have government ownership of 51% or more, to certain Private Entities, it is called disinvestment. This is done in an attempt to earn revenue.
The objective of Disinvestment in India
The main objective of disinvestments is to optimize resources, so as to get the maximum returns out of them. In India, it is primarily aimed at decreasing the burden inefficient and poor-functioning PSUs on the government. This helps improve public finance.
It further introduces competition in the market, as well as defines new levels of discipline. It can, in some cases, even lead to depoliticizing of non-essential services.
Importance of Disinvestment in India
The Indian government started disinvesting its stakes in public-sector companies in the wake of a revamp of stance in the economic policy in the early 1990s — which is commonly known as 'Liberalisation, Privatisation, Globalisation'. This has, over the years, helped the Central Government reduce its fiscal deficits.
In the year 2019, the Government of India had about Rs. 2 lakh crores locked up in PSUs. Thus, disinvestment of these stakes is far too significant for the nation's economy.
This disinvested money can hence further be used for a number of other requirements, such as
Moreover, when these stakes are bought by private entities, it goes at a cheaper price. These private entities then bring skills, discipline and talent to these industries, thus enhancing their overall performance and efficiency.
Current Disinvestment Target in India
The Central Government, in February 2020, announced that the set target for disinvestment in the financial year 2020-21 is Rs. 1.20 lakh crores. This was after missing the budgeted disinvestment target of Rs. 1.02 lakh crores by a huge margin in the previous year.
Adding to this, the Government also expects to mop up a substantial Rs. 90,000 lakh crore revenue by disinvesting its stakes in public sector banks and financial institutions, i.e. this will be in addition to the set target of Rs. 1.20 lakh crores.
In the budget speech, Union Finance Minister Nirmala Sitharaman stated that the Government will be selling part of its stake in the insurance giant LIC (Life Insurance Corporation), and will also be selling its balance holding in the IDBI Bank to private, retail and institutional investors.
