Difficulty in Meeting the Disinvestment Target

Difficulty in Meeting the Disinvestment Target

Tags:      Gig Economy     Economy     WTO     WTO Public Stockholding     MSP     Economic Growth     Masala Bond     Environmental Performance Index     Forecast of Economic Growth     Functions of the Finance Commission

31 Mar 2023

Why is it in the news? - The ministry of Finance issued a statement mentioning that the disinvestment target of Rs. 51,000 crores for 2023-24 may be difficult to meet. It says there are challenges in raising funds through the privatization of public enterprises. The reasons given are:

• Decreased availability of government holdings of over 51% in large listed PSEs.

• Investor perceptions of these stocks are modest compared to their private sector counterparts.

• Due to steep disinvestment targets the market has price overhang.

• Extensive use of Exchange Traded Fund (ETF) routes to sell shares in 2019-2020.

What is a divestment? - Divestment refers to the sale of government-owned public sector companies, assets, or shares to private sector companies, thereby reducing government ownership and control over those companies.

What is the need for divestment? - The government has been accused of being less effective and less competitive than the private sector. It also argues that there should be no role for government in areas where the private sector can operate with greater expertise and efficiency. Proponents of divestment therefore argue that governments must relinquish ownership and control in areas where the private sector can do better. Purposes for the same include:

• Raising funds

• Reduction of fiscal deficit

• Promote competition

• Improved efficiency

• Strategic goals

What goals did the government set in the last budget? - The government has planned the target for disinvestment for 2023-24 at Rs. 51,000 crores. This figure is 21% below the estimated budget for the current year and only just Rs. 1,000 crores above the revised estimate. Thus, it is also the lowest target for the last seven years.

How does the Government of India make use of the disinvestment proceeds?

• To minimise the fiscal deficit: Governments can use these funds to reduce their budget deficit, which is the difference between total income and total expenditure.

• Capital expenditure financing: Governments can fund infrastructure projects like building airports, power plants, and highways.

• Financing schemes of social welfare: Using the proceeds from disinvestment for social welfare plans like health care, education, and housing is considered suboptimal. It is because there is no value addition in the process.

Establishment of the National Investment Fund (NIF) - It was set up by the Government of India in November 2005 to manage the funds from the sale of central public sector companies.

Source : Dipan     The Hindu     The Economic Times