Disinvestment of PSUs, Status and Proceeds of Disinvestments in India

Disinvestment of PSUs: The Union Government is actively pursuing disinvestment policies in various Public Sector Units (PSUs). Disinvestment of PSUs is also important for UPSC Prelims Exam 2023 and UPSC Mains Exam (GS Paper 2- Disinvestment of PSUs)

Disinvestment of PSUs in News

In the Union Budget for 2023-24, the government has set a disinvestment target of ₹51,000 crore. The disinvestment target in the Budget 2023 is down nearly 21% from the budget estimate for the current year and just ₹1,000 crore more than the revised estimate.

• It is also the lowest target in seven years.
• Moreover, the Centre has not met the disinvestment target for 2022-23 so far, having realised ₹31,106 crore to date.
• The out of total realised target in the current fiscal year, a ₹20,516 crore or close to a third of the budgeted estimate came from the IPO of 3.5% of government’s shares in the Life Insurance Corporation (LIC).

Union Budget 2023-24, Key Provisions

What is disinvestment?

Disinvestment or divestment is when the government sells its assets or a subsidiary, such as a Central or State public sector enterprise.

• Minority disinvestment, majority disinvestment, and complete privatisation are the three main approaches to disinvestment.
• On fruition of minority disinvestment, the government retains a majority in the company, typically greater than 51%, thus ensuring management control.
• In the case of majority divestment, the government hands over control to the acquiring entity but retains some stake whereas in complete privatisation, 100% control of the company is passed on to the buyer.

Institutional Mechanism for Disinvestment

The Union Finance Ministry has a separate department for undertaking disinvestment-related procedures called the Department of Investment and Public Asset Management (DIPAM).

• After the the Atal Bihari Vajpayee-led NDA government’s privatisation drive, the stock market saw the listing of shares of a bunch of public sector firms.
• A bold push for disinvestment of the public sector was expected soon after Prime Minister Narendra Modi assumed office in May 2014, announcing that the government had “no business to be in business”.
• The government had introduced a new disinvestment policy in 2021 to maintain ‘bare minimum’ presence in strategic sectors like atomic energy, defence etc., and exit non-strategic sector enterprises.

Why Government Disinvest in PSUs?

The government may disinvest in order to reduce the fiscal burden or bridge the revenue shortfall for that year.

• It also uses disinvestment proceeds to finance the fiscal deficit, to invest in the economy and development or social sector programmes, and to retire government debt.
• Disinvestment also encourages private ownership of assets and trading in the open market.
• If successful, it also means that the government does not have to fund the losses of a loss-making unit anymore.

How has disinvestment fared?

To begin with, different central governments over the last three decades have been able to meet annual disinvestment targets only six times. With ₹31,106 crore in the exchequer as disinvestment proceeds so far, and less than two months remaining in the current fiscal, the government is likely to miss its target.

• Since coming to power in 2014, the BJP-led NDA government has met (and overachieved) its disinvestment targets twice.
• In 2017-18, the government earned disinvestment receipts of a little over ₹1 lakh crore as against a target of ₹72,500 crore, and in 2018-19, it brought in ₹94,700 crore when the target was set at ₹80,000 crore.
• Notably, PRS Legislative Research points out that in recent years, in cases of disinvestment where the government sold more than 51% of its shareholding in Central Public Sector Enterprises (CPSEs), along with a transfer of management control, its stake was sold to another public sector enterprise.
• Case in point, when the Centre exceeded its target in 2017-18, it earned ₹36,915 crore by selling Hindustan Petroleum Corporation Limited (HPCL) to the state-owned Oil and Natural Gas Corporation (ONGC).

Recent Disinvestments in Important CPSEs

In 2018-19, REC Limited was sold to the state-owned Power Finance Corporation Limited, through which the government raised ₹14,500 crore.

• In 2021-22, when Air India was added to the Tata group, the Centre missed its high disinvestment target of ₹1.75 lakh crore by a significant margin, raising just ₹13,534 crore in disinvestment proceeds.
• In the current year, a third of its budget estimate came from the delayed LIC IPO, which would have happened in the previous year if not for market volatility.
• The sale of the 52.8% stake in Bharat Petroleum (BPCL) had to be called off in mid-2022 because almost all the bidders had withdrawn.
• The strategic sale of Central Electronics was also shelved due to lapses in the bidding process and the Pawan Hans stake-sale did not take off as well.
• While the Neelachal Ispat Nigam Ltd. (NINL) was sold to a steel entity of the Tata group, no sale proceeds accrued to the Centre’s exchequer as it held no equity in the company.

Which CPSEs are likely to see disinvestment?

The Centre is not going to add new companies to the list of CPSEs to be divested in 2023-24 and the aspirational divestments of two public sector banks and one general insurance firm, announced in the Budget two years ago, will also not be a part of the plan.

• According to DIPAM, the government has decided to stick to the already-announced and planned privatisation of state-owned companies.
• Incidentally, the disinvestments of Bharat Petroleum Corporation Limited, SCI, and ConCor had been approved by the government in 2019 but have not gone through yet.

Conclusion

Of late, the government’s reliance on disinvestment proceeds to bridge the gap in the Budget has been increasing. However, the Disinvestment proceeds should ideally be driven by the long-term vision of the government and not by the need to raise revenues.

Asset Monetisation Pipeline

Asset Monetisation Pipeline

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