Chanakya IAS Academy Blog

Notice

THE NEWS

The Government has exceeded its disinvestment target for the current fiscal year by Rs 5,000 crore, with proceeds touching Rs 85,000 crore.

KEY-HIGHLIGHTS:

  • The divestment receipts touched Rs 85,000 crores as against a target of Rs 80,000 crore for disinvestment for the current year.
  • This is the second highest disinvestment proceeds in a financial year after the government last fiscal mopped up a little over Rs 1 lakh crore in 2017-18.
  • In the current fiscal, the government is eyeing Rs 14,500 crore by way of sell of its 52.63 percent stake in REC to state-owned Power Finance Corporation (PFC).

Previous pattern:

  • In 2017-18 fiscal, the record proceeds of Rs 1 lakh crore were achieved against a budget target of Rs 72,500 crore.
  • In 2016-17 fiscal, the government had mopped up Rs 46,247 crore through CPSE disinvestment, as against the budget target of Rs 56,500 crore.
  • In 2015-16, the government raised Rs 23,997 crore, as against the budget target of Rs 69,500 crore.
  • In 2014-15, receipts from disinvestment stood at Rs 26,068 crore against a target of Rs 58,425 crore.

INTRODUCTION TO DISINVESTMENT:

  • In 1991, the government initiated the new economic policy that indicated that the Public Sector Units (PSUs) had shown a very negative rate of return or capital employed.
  • Government’s inefficient PSUs were turning into a liability than being assets.
  • With this, the national gross domestic product (GDP) and gross national savings were also getting adversely affected by low returns from PSUs.
  • Due to these reasons, the government needed to get rid of these units and to concentrate on core activities.
  • Finally, disinvestment was seen by the Government to raise funds for meeting needs.In this direction, the Centre adopted the 'Disinvestment Policy' for the economy, with the following main objectives:
    • To reduce the financial burden on the Government
    • To improve public finances
    • To introduce, competition and market discipline
    • To fund growth
    • To encourage wider share of ownership
    • To depoliticize non-essential services

WHAT IS DISINVESTMENT:

  • Disinvestment or divestiture can be defined as the action of an organization (or government) selling or liquidating an asset or subsidiary.
  • In simpler terms, it refers to sale from the government, partly or fully, of a government-owned enterprise.
  • In disinvestment through the Exchange Traded Fund (ETF) route, the government sells part of its equity holdings in select PSUs to a fund company which runs an ETF.
  • An Exchange Traded Fund does not have a fund manager selecting stocks but mirrors a readymade index.
  • Once the government sells its equity stakes to the ETF, the fund company then sells units in this readymade portfolio to thousands of public investors.
  • Each of them get to partly own the basket of PSU stocks being offloaded by the government.
  • So far, the government has used two ETFs to pursue its disinvestment programme:
    • CPSE ETF: The CPSE ETF, managed by Reliance Nippon Mutual Fund, tracks the Nifty CPSE Index made up of 11 PSU stocks from the energy, metals, financial services and industrials space.
    • Bharat ETF: The Bharat 22 ETF, managed by ICICI Prudential Mutual Fund, features 22 companies drawn from 11 different sectors, with private sector firms such as L&T and ITC thrown in.

TYPE OF DISINVESMENT:

  • Minority Disinvestment: Minority disinvestment refers to such investment where the government retains a majority stake in the company (greater than 51%), thus, ensuring management control.
  • Majority Disinvestment: In this investment, the government, post disinvestment, retains a minority stake in the company. It is also known as Strategic Disinvestment.
  • Complete Privatization: Complete privatization refers to majority disinvestment wherein 100 percent control of the company is passed on to a buyer i.e., private company.

CURRENT SETUP FOR DISINVESTMENT:

Department of Investment and Public Asset Management (DIPAM):

  • In December 1999, the department of divestment was formed, which later was made the ministry of disinvestment in September 2001.
  • In 2004, the department was shifted to the ministry of finance as one of the departments under it.
  • Now, the department of investment has been renamed as Department of Investment and Public Asset Management (DIPAM)

National Investment Fund:

  • The National Investment Fund (NIF) was formed in 2005 for channelizing the proceeds from disinvestment of Central Public Sector Enterprises.
  • The nature of money with the NIF is permanent.
  • Selected Public Sector Mutual Funds, namely SBI Funds Management Private Ltd.,LIC Mutual Fund Asset Management Company Ltd and UTI Asset Management Company Ltd. have the responsibility to manage the NIF money.

BENEFITS OF DISINVESTMENT:

  • Disinvestment helps in reducing public debt and bringing down the debt-to-GDP ratio, and also helps public undertakings to function effectively in the competitive atmosphere.
  • The practice also assumes significance due to the prevalence of an increasingly competitive environment, which makes it difficult for many PSUs to operate profitably.
  • Its proceeds are utilized for financing the burgeoning fiscal deficit, large-scale infrastructure development, investing back in the economy to stimulate spending, retiring government debt and for social sector welfare programs in health, education, MGNREGA etc.

THE ROAD AHEAD:

For the second year in a row, the Department of Investment and Public Asset Management has exceeded the Revised Estimates. For the next fiscal, the disinvestment target has been fixed at Rs 90,000 crore.

Read 239 times Last modified on Saturday, 23 March 2019 11:14

Leave a comment

Make sure you enter all the required information, indicated by an asterisk (*). HTML code is not allowed.