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India’s Disinvestment Strategy amidst upcoming Elections - Coggle Diagram
India’s Disinvestment Strategy amidst upcoming Elections
Contex
Focus on minority stake sales, not full privatization, expected to miss FY24 target.
Generated over ₹4.20 lakh crore in the past decade.
Government's cautious approach influenced by upcoming general elections, causing a slowdown in major PSU privatizations.
FY24 Target: ₹51,000 crore, reduced from the previous year's estimate.
What is Disinvestment?
3 main approaches
to disinvestment
Majority disinvestment:
The government hands over control to the acquiring entity but retains some stake.
Complete privatization:
100% control of the company is passed on to the buyer.
Minority disinvestment:
The government retains a majority in the company, typically greater than 51%, thus ensuring management control.
Disinvestment is when the government sells its assets or a subsidiary ex. CPSEs
Mechanism:
Department of Investment and Public Asset Management (DIPAM)
Objectives of disinvestment
To introduce, competition and market discipline
To encourage wider share of ownership
To improve public finances
To depoliticize non-essential services
To reduce the financial burden on the Government
Benefits of disinvestment policy
For society
better services
employment generation
social welfare
For market
increase market profitability
reduce govt. interference
more competition into various sectors
For government
save resources by spending less on PSUs
reducing the fiscal deficit.
reduce the government’s debt.
Issues in
disinvestment
Continuing majority ownership of the government
Loss-making units don’t attract investment so easily.
Low prices at which some of the initial shares were sold
It may lead to the emergence of private monopolies.
More of a resource-raising exercise
How has disinvestment
fared in India?
Raised a record ₹1.05 trillion (US$14.6 billion) for the fiscal year of 2017–18.
Recent years have seen several successful disinvestment deals ex. LIC, Air India
Since 2014, it has made significant progress in disinvestment,
Conclusion
Short-term financial exigencies should not be the Centre’s sole reason for disinvestment in core sectors like petroleum
Disinvestment is a preferred option for ideological and practical reasons
The government could utilize the money gained by selling off PSUs to improve services in public goods like infrastructure, health and education
Confronted with an unprecedented fiscal deficit and worried by an economy in crisis, the government has to find resources