News

STRATEGIC DISINVESTMENT

Written by Talent KAS

Related Topic in KAS Prelims Syllabus:

Economy and Planning [Paper-II]: Indian economy in post reform period – new economic reforms

News

  • Central Government gave in-principle approval for strategic disinvestment of the government shareholding in five public sector enterprises along with management control.
  • These five PSUs are Bharat Petroleum Corporation Ltd (BPCL); Shipping Corporation of India; Container Corporation of India; Tehri Hydro Power Development Corporation (THDCIL), and North Eastern Electric Power Corporation Ltd (NEEPCO).

Why do governments divest stake in PSUs?

  • According to some economists, “the government has no business being in business”.
  • It means that the government’s role is to facilitate a healthy business environment and the core competence of a government does not lie in selling fuel or steel at a profit.
  • With governments always having to spend more than they earn through taxes and other means, additional income from the proceeds of a stake sale is always welcome.
  • In the case of India, the government has to spend higher amounts on infrastructure to boost economic growth, along with its commitments on health and education.

What is strategic disinvestment?

  • A strategic sale by a government is one where the management control is ceded to the buyer.
  • Strategic disinvestment would imply the sale of substantial portion of the Government share holding of a central public sector enterprise (CPSE) of upto 50%, or such higher percentage as the competent authority may determine, along with transfer of management control.
  • It is guided by the basic economic principle that the Government should discontinue its engagement in manufacturing/producing goods and services in sectors where the competitive markets have come of age, and such entities would most likely perform better in the private hands due to various factors.

Benefits

  • The resources unlocked by the strategic disinvestment would be used to finance the social sector/developmental programmes of the Government benefiting the public.
  • The unlocked resources would form part of the budget and the usage would come to scrutiny of the public.
  • It is expected that the the strategic buyer/ acquier may bring in new management/technology/investment for the growth of these companies and may use innovative methods for their development.

Background

  • Since liberalisation began in India in 1991 under the then Prime Minister P.V. Narasimha Rao, the country saw a steady flow of disinvestment decisions.
  • However, privatisation, where buyers took over management control, began later.
  • Arun Shourie, the country’s first Disinvestment Minister is credited with the privatisation of Maruti, Bharat Aluminium Company Ltd., Videsh Sanchar Nigam Limited and Hindustan Zinc through the strategic sale process.
  • In 2015, Union Government reinitiated the policy of strategic disinvestment in order to open up sectors for private enterprise to bring efficiency in management that would contribute to general economic development.
  • In her budget speech of 2019, Union Finance Minister had announced that in view of current macroeconomic parameters, more CPSEs will be offered for strategic disinvestment.

[Source: The Hindu, Economic Times, All India Radio]

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Talent KAS

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