Objectives & Need for DisInvestment Policy in India

Objectives & Need for DisInvestment Policy in India

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The government's holdings of shares in various government firms serve as revenue-generating assets at the government's disposal. They could be sold to earn capital at any moment. As a result, when those shares are offered for sale to earn capital, the process is referred to as disinvestment. It involves the sale or liquidation of an organization's or government's assets or subsidiaries, although the government's share should never go below 51%.

India's Disinvestment Policy Objectives

• Reduce the financial strain imposed by unhealthy, loss-making PSUs

• To aid in the improvement of state finances.

• Encourage enterprise competitiveness and market discipline.

• Assist in the funding of different social welfare activities.

• To encourage a greater proportion of ownership.

• Reduce political meddling in non-essential services.

India requires a disinvestment policy

• It may aid in funding the growing fiscal deficit.

• Support for a variety of large-scale infrastructure development initiatives.

• Increase the economic investment situation to encourage consumption.

• To retire debt owed by the government, since virtually 40-45% of the Centre's revenue sources are put aside for public debt/interest payments.

India's Disinvestment Policy

• The emphasis on public-sector enterprises began with the second five-year plan and the 1956 Industrial Policy Resolution.

• The disinvestment as a policy endeavour began in 1991, with the beginning of economic liberalisation, globalisation, and structural changes.

• The administration of PV Narasimha Rao started a Disinvestment Policy in 1991, announcing that the government will disinvest up to 20% of its shares in chosen PSUs, mostly through mutual funds and FIIs (Financial Institutions Investors).

• The following phase of Disinvestment permitted additional individuals, such as FIIs and company employees, to participate.

• The C Rangarajan Committee, which advocated 49% disinvestment, was appointed.

• Significant developments related with disinvestment happened during the Atal Bihari Vajpayee era.

• In 2005, the National Investment Fund was established, through which money generated via DisInvestment were routed.

• A new Disinvestment Policy was proposed in order to reinvest the funds in new initiatives. The Disinvestment Department was renamed the "Department of Investment and Public Asset Management" (DIPAM).

As a result, the government's Disinvestment process has helped it to tackle many issues such as decreasing the fiscal deficit, creating capital to channel for benefit programmes, infrastructure projects, and so on. However, the government must assure trust in the selling procedures, an impression of fair values, and some protection for officials from prospective post-transaction persecution by audits and probing agencies.