Going through the disinvestment targets

(MainsGS3:Indian Economy and issues relating to planning, mobilization, of resources, growth, development and employment.)

Context:

• In the Union Budget for 2023-24, the government has set a disinvestment target of ₹51,000 crore, down nearly 21% from the budget estimate for the current year and just ₹1,000 crore more than the revised estimate which is the lowest target in seven years.

About disinvestment: 

• Disinvestment or divestment, in this context, is when the government sells its assets or a subsidiary, such as a Central or State public sector enterprise. 
• Minority disinvestment, majority disinvestment, and complete privatisation are the three main approaches to disinvestment. 
• On fruition of minority disinvestment, the government retains a majority in the company, typically greater than 51%, thus ensuring management control. 
• In the case of majority divestment, the government hands over control to the acquiring entity but retains some stake whereas in complete privatisation, 100% control of the company is passed on to the buyer.

Reduce the fiscal burden:

• The Union Finance Ministry has a separate department for undertaking disinvestment-related procedures called the Department of Investment and Public Asset Management (DIPAM). 
• 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.
• Disinvestment also encourages private ownership of assets and trading in the open market. 
• If successful, it also means that the government does not have to fund the losses of a loss-making unit anymore.  
• A bold push for disinvestment of the public sector was expected soon after Prime Minister Narendra Modi assumed office in May 2014, announcing that the government had “no business to be in business”.

CPSEs likely to be divested:

• The Centre is not going to add new companies to the list of CPSEs to be divested in 2023-24 and the aspirational divestments of two public sector banks and one general insurance firm, announced in the budget two years ago, will not be a part of the divestment plan either. 
• According to DIPAM, the government has decided to stick to the already-announced and planned privatisation of State-owned companies.
• These include IDBI Bank, the Shipping Corporation of India (SCI), the Container Corporation of India Ltd (Concor), NMDC Steel Ltd, BEML, HLL Lifecare, and so on. 
• Incidentally, the disinvestments of Bharat Petroleum Corporation Limited, SCI, and ConCor had been approved by the government in 2019 but have not gone through yet. 
• The divestments of both SCI and ConCor were stuck as some of the physical assets of these companies were properties of the States they are located in and had to be demerged. 
• The divestment of major holdings of the IDBI bank is also in the pipeline and is likely to be concluded by mid-FY24. 

Challenges to disinvestment: 

• Observers point out that disinvestment should ideally be driven by the long-term vision of the government on the extent to which it wants to privatise the economy and the sectors where it needs to retain a presence — and not by the need to raise revenues. 
• However, of late, the government’s reliance on disinvestment proceeds to bridge the gap in the Budget has been increasing.
• It had introduced a new strategic disinvestment policy in 2021 to maintain ‘bare minimum’ presence in strategic sectors like atomic energy, defence etc., and exit non-strategic sector enterprises. 
• Besides, disinvestment planning calls for a consistent and long-term rationale. 
• The profitable oil refining and marketing company BPCL, which was put up for divestment, had been paying healthy dividends and made investments in upstream energy resources.