Disinvestment – UPSC Prelims

  • Disinvestment means sale or liquidation of assets by the government, usually Central and state public sector enterprises, projects, or other fixed assets.
  • 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.
  • Strategic disinvestment is the transfer of the ownership and control of a public sector entity to some other entity (mostly to a private sector entity). Unlike the simple disinvestment, strategic sale implies a kind of privatization.
  • The Department of Investment and Public Asset Management (DIPAM) under the Ministry of Finance is the nodal department for the strategic stake sale in the Public Sector Undertakings (PSUs).
  • Strategic disinvestment in India has been guided by the basic economic principle that the government should not be in the business to engage itself in manufacturing/producing goods and services in sectors where competitive markets have come of age.
  • The economic potential of such entities may be better discovered in the hands of the strategic investors due to various factors, e.g. infusion of capital, technology up-gradation and efficient management practices etc.
New Disinvestment/ Strategic Disinvestment Policy:
  • Under the proposed Disinvestment/Strategic Disinvestment Policy, Government has kept four areas as strategic where bare minimum CPSEs will be maintained:
    • Atomic energy, Space and Defence;
    • Transport and Telecommunications;
    • Power, Petroleum, Coal and other minerals;
    • Banking, Insurance and financial services
  • In the non-strategic sectors, CPSEs will be privatised, otherwise shall be closed.
  • Excluded are central public sector enterprises concerned with:
    • assisting farmers in getting access to seeds;
    • promoting innovation in agriculture;
    • procurement and distribution of food for the public distribution system.