Disinvestment Policy In India & Dipam – for UPSC exam

What’s Disinvestment?

Disinvestment can be defined as the action of an organisation (or government) selling or liquidating an asset or subsidiary. Govt target for FY18 is 72500cr.

Disinvestment Policy In India
Various Ways of disinvestment-

• Sale of minority stake through IPO or Offer for Sale
• Multiple disinvestments through Exchange Traded Funds in stock markets. Bharat 22 ETF Fund
• Strategic Sale
It started after 1991 economic policy and was suggested by Rangarajan committee in 1993 and Disinvestment Commission in 1996.

Disinvestment plan of Govt. of India-

• ministry name changed to DIPAM
• Alternate Mechanism by CCEA where a minister’s panel will decide on strategic sale of PSU
• Govt to come up with strategic disinvestment policy. This comes after more than a decade when privatisation of PSU was ended
• Govt accepts NITI Aayog recommendation of strategic sale in 22 PSU up to 51%
• National Investment Fund- It was created in 2005. All the proceeds from the disinvestment of Centre Public Sector Enterprises were to be channelized in this fund.

Advantages of disinvestment –

• Loss making PSU are a costly appendage
• Trade unionism, inefficient workers and bureaucratic red tapism hamper growth
• Private sector injects efficiency and technology
• It ensures competition increases in market as private players increase
• Fund raising for the government and release of stuck capital

Disadvantages of disinvestment-

• Loss of jobs and lesser government control
• Private monopolies and cartels may be created
• Undervaluation of assets while selling gets less money
• Due to lack of private demand, govt asks LIC to buy shares
• Corruption and delays in disinvestment process. FY17 target of 56000 cr never achieved.

Video lecture on disinvestment Policy In India