Disinvestment of 23 PSUs (31 July 2020)
Disinvestment of 23 PSUs. (31 July 2020)
Why in News:
The government is working on completing the stake sale process of about 23 public sector companies whose divestment has already been cleared by the Cabinet, Finance Minister Nirmala Sitharaman said on Monday. The minister also said she would soon meet small finance firms and non-banking finance companies (NBFCs) to review the credit being extended by them to businesses. The minister said the government wants to sell stake in public sector companies at a time when it fetches the right price.
For the 2020-21 fiscal, the government has set a disinvestment target of Rs 2.10 lakh crore. Of this, Rs 1.20 lakh crore will come from disinvestment of public sector undertakings and another Rs 90,000 crore from stake sale in financial institutions.
Disinvestment is aimed at reducing the financial burden on the government due to inefficient PSUs and to improve public finances.
The Indian economy was adversely affected by bankruptcy during the period 1981-91.
The new economic policy has given rise to significant focus for the privatization of public enterprises in the year 1992.
The process of disinvestment in India was started in the year 1992 and 31 selected PSUs were disinvested for Rs.3,038 crore
The government has raised a total of Rs 4.5 lac crore till date through disinvestments. However, no sale of a company to a private player has been made since 200
Summary of the Debate
Need of the disinvestment:
- GDP was getting adversely affected by low returns from PSUs, bout 10 to 15 % of the total gross domestic savings were getting reduced on account of low savings from PSUs.
- To reduce the financial burden on the Government
- To improve public finances.
- To reduce the fiscal deficit.
- To introduce, competition and market discipline.
- Making availability of the funds for the growth of the PSUs and the economy.
- The disinvestment encourages the wider share of ownership in the market.
- For financing large-scale infrastructure development.
- The world over the consumption of petroleum products in India is continue to increase and in other places in the developed economies it is not. So, the major companies are looking at Indian market.
Policy followed by Government to disinvestment and meeting targets:
- Last two years there were significant targets for disinvestment. So the disinvestment targets are kept but then the entities have to be found which are suitable for disinvestment, so that they attract investment and they are significant investment.
- There is a sectoral limit for investment in many areas, in some areas it is 100 percent, in some areas it is 74 and 49 percent, but mostly there is a liberalized regime for foreign investment.
- Earlier, minority stakes have been either auctioned off to financial institutions or offloaded to the public by way of an offer for sale.
- The present government has made a policy statement for FY 2018-19 that all disinvestments would only be minority disinvestments through public offerings.
- Disinvestment may be the reason for public monopolies becoming private monopolies due to complete privatisation, which can exploit their position to increase costs of various services to earn higher profits.
- Making funds from disinvestment to reduce the fiscal deficit is not a long term practice and an unhealthy process.
- It can affect labour forces' social security.
- According to some experts strategic disinvestment of Oil PSUs may be threat to National Security because Oil is a strategic natural resource and possible ownership in the foreign hand is not consistent with our strategic goals.
- There may be loss of regular income to the Government due to sale of profit-making PSUs.
- Policy environment must be very conducive for the disinvestment and privatisation for the more and more participation of private sector.
- There must be policy reforms in consultation with the private sector and the major stakeholders.
- Government has to move forward even if the investment in some of the companies is not very attractive because they are more or less have now become a burden on the exchequer and they are not really serving the core interest of the government.
- The strategic sale process needs to be fair and transparent.
- The partnership of government and the private sector will attract more and more investments and this is the good move not only for the PSUs and the government but also for development story of India.
Important points made by the Guests
Sushil Chandra Tripathi, Former Principal Secretary, Finance, UP
Subhomoy Bhattacharjee, Consulting Editor, Business Standard
S. P. Sharma, Chief Economist, PHDCCI