Disinvestment Policy of India

By : Neha Dhyani

Updated : Apr 6, 2022, 5:41

Disinvestment from the Disinvestment Policy of India refers to the government or organization selling or liquidating assets or subsidiaries. Disinvestment can take the form of divestment or a decrease in capital expenditures. Disinvestment occurs for a variety of reasons, including strategic, political, or environmental considerations.

Disinvestment Policy of India - Overview

During the 1990s, after the onset of the economic policy popularly known as 'liberalization, privatization, and globalization, the Indian Government had begun disinvesting its stake in the public-sector companies, which helped them reduce the fiscal deficits in their accounts.

The sold stakes in the public-sector companies by the government would help them raise revenue. Even in recent times, the central government has used this method to make up for the ventures facing losses and then to increase the non-tax revenues.

Ever since the NDA (National Democratic Alliance) came to power in the central government, it has made a few vital disinvestments in key PSUs (Public Sector Undertakings) like Hindustan Zinc and Bharat Aluminium, VSNL, and Indian Petrochemicals Corporation Limited.

The NDA government under the leadership of Prime Minister Narendra Modi tried to retire the government debt because approximately 41-45% of the revenue receipts of the central government were used for repayment of public debt or related interest which further led to the increment of the disinvestment target for the year 2017-18 by the government, after failing to retire the debt of Air India.

The method of strategic cross-disinvestment in which one PSU buys a stake in the other could have made this possible. This not only allows the government to raise the revenue it needs but also keeps the control of the company under the government.

Disinvestment Policy of India Objective

  • Helps in improving the public finances of the country
  • Depoliticizing essential services
  • Permitting private ownership
  • Working on the diversification and expansion program
  • Stabilizing the competition in the market with balance
  • Workforce rationalizing and retraining

Disinvestment Policy of India Types

  • Minority Disinvestment: The government tries to preserve the majority stake in the company which is around 51%. Further, it tries to put the control in the hands of the management.
  • Majority Disinvestment: Majority Disinvestment is the one in which the government retains a minority stake in the company after the disinvestment.
  • Complete privatization is a type of majority disinvestment in which the company's entire ownership is transferred to a buyer.
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Disinvestment Policy of India Reasons

  • To meet the fiscal shortfall.
  • Augmentation or assortment of the firm.
  • The government can repay debts.
  • Planning to implement a government plan.
  • A negative rate of return on the Public Sector Undertaking

Disinvestment Policy of India Importance

The importance of disinvestment includes:

  • Funding the growing fiscal deficit
  • Subsidizing the large-scale infrastructure development
  • To encourage investment in the economy
  • For repaying public debt
  • For social programs such as health care and education

Recent Disinvestment Policy of India

The central government has revised and reduced the estimate for its disinvestment during the current fiscal year to Rs. 78,000 crores. It was initially Rs. 1.75 lakh crores which was the target estimate in the budget on the 1st of February last year and is a reduction of 55.4%.

The revised estimate of the current financial year was reduced by the government to prevent the revelation of the estimated value of the IPOs (Initial Public Offerings) of LIC India (Life Insurance Corporation) at the current stage. It is a big IPO and is scheduled for the current financial year.

The Disinvestment Policy of India is beneficial to a country's economy because it generates revenue for the government, improves the performance of enterprises, and strategizes units that are losing money.

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FAQs on Disinvestment Policy in India

Q.1. Who introduced the Disinvestment Policy in India?

The Disinvestment Policy in India chaired by G.V. Ramakrishna was set up in In August 1996. The main goal of the committee was to advise, supervise, monitor, and publicize the gradual disinvestment of Indian PSUs. It submitted 13 reports covering recommendations on the privatization of 57 PSUs.

Q.2. In the context of the Disinvestment Policy of India, who was the first Chairman of the Disinvestment Commission?

In the context of the Disinvestment Policy of India, G.V. Ramakrishna was the first Chairman of the Disinvestment Commission.

Q.3. What are the different types of Disinvestment policies in India?

With regards to the Disinvestment Policy of India, the Different types of Disinvestment include -

  • Minority Disinvestment
  • Majority Disinvestment
  • Complete Privatization

Q.4. What is the Definition of Disinvestment, From Disinvestment Policy of India

Disinvestment from the Disinvestment Policy of India refers to the government's sale or liquidation of assets, most commonly Central and state public sector enterprises, projects, or other fixed assets.