Disinvestment - Meaning, DIPAM, Disinvestment Policy UPSC PDF

By K Balaji|Updated : February 1st, 2023

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. The disinvestment policy in India also assists in meeting the shortfall of the deficits.

This article facilitates complete knowledge of the disinvestment policy in India. The aspirants preparing for the UPSC exam must be in possession of an in-depth knowledge of the core concepts and fundamentals. The concept of disinvestment will aid in lowering the GDP-to-debt ratio. The chairman of the disinvestment policy of India is G.V Ramakrishna.

Table of Content

Meaning of Disinvestment

Meaning of disinvestment is the action of the government to dissolve the shareholders in the public sector. There is a surge in the purveying of public goods and services. The funds attained from the disinvestment will assist in more purveying of the public sector enterprises. The major objectives of the disinvestments are to lower the financial burden and to surge and uplift public finances.

DIPAM

The reformation and the renaming of the Department of Disinvestment was named as Department of Investment and Public Asset Management. The renaming of the department was declared by the Minister of Finance in the budget. The foremost and primary objective of DIPAM is to regulate the investments of the Centres effectively. It also governs disinvestment. It suggests the Government for reformation of the financial aspects. They also bring in investments. It effectively caters to the reformation of capital shares, dividends, and bonuses.

Types of Disinvestment

The major types of disinvestment have been stratified into the minority, majority, and complete privatization. The main significance of the disinvestment lies in financing the infrastructural projects, lowering the debt-to-GDP ratio etc. Take a look at the illustration of the types of disinvestments in India-

  • Minority Disinvestment: The government tries to preserve the majority stake in the company which is around 51%. Further, it tries to put 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.

Disinvestment Policy of India - Background

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 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.

Issues with Disinvestment Policy in India

There were certain challenges faced by the disinvestment policy. One of the major problem was liquidating the essential assets can even pose risk to the security of the nation. Selling the Public Sector Undertakings that are acquiring profit and also impact the revenue of the country. Also, according to the experts this can focus on short term problems, selling the assets will not help the economy to deal with fiscal deficits in a longer run. This can even lead to a surge in the autocratic power of private sectors.

This is also an important topic for the IAS exam. The candidates can practise well and gain complete knowledge of the concepts. The bureaucratic interference also surges problems in the disinvestment policy. This is considered equivalent to selling off the family assets for repaying the debts, which can never be considered an effective solution to the problem.

Difference Between Disinvestment and Privatisation

The main point highlighting the difference between disinvestment and privastisation is that in the former one there is the solvency of the assets whereas in the privatization there is the transfer of authority and ownership from the Public Services to the private entities. The other differences have been highlighted here-

Disinvestment

Privatisation

Transfer of ownership is not involved

Transfer of ownership is involved

The management does not change

The management also changes

The Government can keep 50% of its shares

Usually the shareholding of the Government reduces to less than 50%. 

Objectives Of Disinvestments

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. The other objectives of the disinvestment have been mentioned here-

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

Need of Disinvestments

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.

  • To meet the fiscal deficit.
  • 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 policy of India includes lowering the GDP to debt ratio. The other benefits of the disinvestment are as listed below-

  • 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.

Criticism of Disinvestment Policy in India

The disinvestment policy in India has witnessed numerous criticisms. There are some fallacies in the policies that can lead to an increase in the fiscal deficit. There is no absolute focus on Public Sector Undertakings. The disinvestment policy in India progressed at a minimal pace. There were no major reforms in the public sector. In accordance with the views expressed by the experts, it is nearly impossible for private entities to emphasize equitable sharing of the resources and growth of all. The main motive in the private sector is to make profit.

The disinvestment strategy can harm if the investments are pulled out of essential domains like oils. This step can pose risk to national integrity. The private entities can also cut off the workforce in order to surge the profit of the organizations.

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 are 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.

Disinvestment For UPSC Exam

The aspirants preparing for the UPSC exam must have an in-depth knowledge of these topics in order to grasp the core concepts. The formula for performing exceptionally well in the exam roots from the preparation of the basic topics. The disinvestment, DIPAM, and disinvestment policy hold enormous importance for the candidates to rank well in the UPSC exam.

The candidates can gain an understanding and insights of the disinvestment policies and solve the previous year papers to develop the knack of solving the questions in the stipulated time period. The ideation of the disinvestment policy will lead the candidates in comprehending other related concepts.

Important Notes for UPSC
Comparison of Indian Constitution with other CountriesLok Sabha Speaker
National Health PolicyBuddhism
Lachit BorphukanLocal Winds
Bhagat SinghCommissions and their Recommendations
DemonetisationScheduled Tribes

Comments

write a comment

FAQs on Disinvestment

  • G.V Ramakrishna was the first chairperson of the disinvestment policy in India. The primary and foremost objective of the committee included advising, supervising, monitoring, and publicizing the eventual disinvestment of the Indian PSUs. The submission of 13 reports covers and comprises the recommendations for the privatization of the PSUs. The candidates can download Disinvestment Policy UPSC PDF for complete knowledge of the exam.

  • The disinvestment commission was first chaired by G.V. Ramakrishna. The disinvestments cater to the financial growth of the sector. The types of disinvestments are a minority, majority, and complete privatization.

  • The disinvestments are instrumental in meeting the fiscal deficits and surging the growth of the finances. The types of disinvestments are stratified into the following categories-

    • Minority Disinvestment- The majority stake is retained in the company after the disinvestments.
    • Majority Disinvestment- A minority stake is retained in the company after the disinvestment.
    • Complete Privatization- The entire authority of the Company is transferred to the owner.
  • Disinvestment refers to the dissolving of the assets associated with the Central and public sector enterprises. It plays an instrumental role in lowering the debt-to-GDP ratio. It also assists in diversifying the expansion program. The three types of disinvestments are the majority, minority, and complete privatization.

  • The major objective of disinvestment is to surge the public finances of the country. It also aims to permit private ownership. It caters to the expansion and diversification program. It also helps in balancing the competitiveness of the market. It also possesses the objective of retraining and rationalization the workforce in the market.

  • The needs for disinvestment policies are to meet the shortfall of the fiscal deficit. Through the disinvestments, the government is able to repay the loans. It will present the plan to implement the plans of the government. The importance of disinvestments lies in surging social programs such as health care and education.

  • Disinvestment policy in India means selling off or liquidating the assets to dissolve the shares in the public sector. The transfer of ownership is not mandated in the case of disinvestment. The main types of disinvestment policies are minority and majority disinvestments. After the economic policy of 1991 which focused on liberalization, privatization, and globalization, the Indian government started focusing on the disinvestment policy in India.

  • There are both positive and negative influences of the disinvestment policy in India. The positive includes growing the fiscal deficit, repaying the debts, focusing on health care and infrastructure, and motivating to invest in the economy. The main criticism of the disinvestment policy is selling off the assets is not considered a long-term solution to the problems, and it also impacted the revenue of the country.

  • The main issues with the disinvestment policy in India are that selling off assets is not considered a solution for the economy. Liquidating the assets that are essential for the country can also pose threat to the security of the nation. The autocratic powers of the private sector can come into the picture. Also, selling the shares that are making a profit can affect the revenue.

  • The disinvestments are selling off the assets and pulling off the shares from the company to repay the debt and cater to the fiscal deficit. Recently it was declared by the Government authorities that the disinvestment of BPCL will take place. It is a subsidiary owned by the Government of India.

  • It was first declared in the interim budget of 1991-92. The Government decided to dissolve 20% of its assets in some of the Public Sector Enterprises. G.V Ramakrishnan first introduced the disinvestment policy in India. The Commission was also chaired by Ramakrishnan.

  • Disinvestment can affect the economy of the country in a positive way. A strong capital can be developed and it can be helpful in repaying debts. In some cases, there can be challenges with the disinvestment policy when assets of an essential entity are dissolved, or the liquidation of a profitable asset can also affect the revenue of the country.

Follow us for latest updates