Disinvestment

Context:

The officers and employees of IDBI Bank will hold a protest before Parliament during the Budget session to highlight their demand regarding disinvestment in the bank and protecting the interests of 30 million customers, 20,000 employees, and the nation.

Disinvestment Process in India

It is the process of selling the government’s stake in public sector enterprises to strategic or financial buyers. The proceeds are used to finance social and infrastructure projects and reduce the fiscal deficit of the government.

• Approaches
  • Minority Disinvestment: The government maintains a majority in the company, usually more than 51%, thereby retaining management control.
  • Majority Divestment: The government gives up control to the acquirer but retains a stake.
  • Complete Privatisation: 100% control of the company is transferred to the buyer.
• Process
  • The process of disinvestment in India is carried out by the Department of Investment and Public Asset Management (DIPAM), which is a subsidiary of the Ministry of Finance.
  • The main motive of DIPAM is to manage investments by the Government in public sector enterprises and supervising the process of disinvestment of government’s equity in such enterprise.
• National Investment Fund
  • Government has formed the National Investment Fund in the year 2005 and all the Central Public Sector Enterprise disinvestment amounts were to be channelized through NIF

What is Need For Disinvestment?

• Reduce the Fiscal Burden:
  • The government may disinvest in order to reduce the fiscal burden or bridge the revenue shortfall for that year.
  • It also uses disinvestment proceeds to finance the fiscal deficit, to invest in the economy and development or social sector programmes, and to retire government debt.
• Encourages Private Player:
  • Disinvestment also encourages private ownership of assets and trading in the open market.
    • This would encourage more private sector investments in the economy since it projects that the government is committed to reforms and to better business environment.
• Improves Efficiency:
  • By divesting from public sector enterprises, the government can improve the efficiency and competitiveness of these enterprises, as private sector ownership and management can bring in new ideas and a more market-oriented approach.
• Better Allocation of Resources:
  • The government can reallocate the resources freed up through disinvestment towards other priorities, such as social and infrastructure development.
• Increases Transparency:
  • Disinvestment can bring in greater transparency and accountability in the functioning of public sector enterprises, as private sector ownership and management can lead to more stringent financial and operational reporting.