Disinvestment includes selling of the shares of the state-owned enterprises to the private sector.
  • The Department for investment and public asset management (DIPAM) under Ministry of finance is the nodal agency for disinvestment
  • As per the New Economic Policy, 1991, PSU’s had a negative rate of return on capital employed. Hence a Disinvestment Policy was adopted with the following objectives:
o Reducing the financial burden on the government and fund growth
o Introducing competition and market discipline
o Encouraging wider share of ownership
o Depoliticizing non-essential services
  • If an asset has been sold out by the government to the tune of only 49 per cent the ownership remains with the state though it is considered Privatization. It is also called disinvestment through minority stake sale.
  • If the sale of shares of the state-owned assets has been to the tune of 51 per cent, the ownership is really transferred to the private sector even then it is termed as privatization. This is disinvestment through majority stake sale.
  • Strategic disinvestment would imply the sale of substantial portion of the Government shareholding of a central public sector enterprise (CPSE) of up to 50%, or such higher percentage as the competent authority may determine, along with transfer of management control.
  • According to disinvestment policy, NITI Aayog is to identify CPSEs for strategic disinvestment and advice on the mode of sale, percentage of shares to be sold of the CPSE and method for valuation of the CPSE.
  • Disinvestment is part of country’s capital receipt
  • Disinvestment is a budgetary exercise as the government announces yearly targets for disinvestment of selected PSUs.
  • The government was able to garner revenue through share buybacks, share crossholding, initial public offerings, offer for sale, as well as exchange traded funds. In light of this, the Government has raised the disinvestment target to 105,000 crores for the FY 2020.
  • Budget 2019-2020 highlighted that the government would not only reinitiate the process of strategic disinvestment of Air India, but would offer more CPSEs for strategic participation by the private sector.
  • The increase in disinvestment target shows that the government is relying on proceeds from selling its stake in CPSEs to boost its revenue in the light of uncertainty over tax collection especially the GST.

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