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Government's Disinvestment Plans

  • 18 Jan 2021
  • 4 min read

Why in News

Recently, the Ministry of Finance has extended the bidding deadlines for the strategic disinvestment of Pawan Hans by a month, citing logistical challenges faced by interested bidders due to the Covid-19 pandemic.

  • Pawan Hans Limited is a helicopter service company based in New Delhi. It is a Mini Ratna-I category Public Sector Undertaking.

Key Points

  • Background:
    • Government's Disinvestment Target for 2020-2021: Government plans to raise Rs. 2.1 lakh crore through disinvestment in 2020-21, with just about Rs. 14,000 crore raised so far through minority stake sales.
    • New Public Sector Policy: As part of the ‘Aatmanirbhar Bharat Abhiyan’ package, the government in May 2020 had announced that there will be a maximum of four public sector companies in the strategic sectors, and state-owned firms in other segments will eventually be privatised.
      • Under the policy, a list of strategic sectors will be notified where there will be at least one and a maximum of four public sector enterprises, apart from private sector companies.
      • In other sectors, central public sector enterprises (CPSEs) will be privatised, depending on the feasibility.
  • Current Situation:
    • The Bidding deadline for the disinvestment of Pawan Hans has been extended by a month.
    • Strategic sales of public sector firms like Air India and Bharat Petroleum Corporation Limited (BPCL) are unlikely to conclude this year.
    • Further amendments are needed to the LIC Act of 1986 to list the Life Insurance Corporation of India on the markets.
  • Need for Disinvestment Proceeds:
    • There is a pressure on the government to raise resources to support the economic recovery and meet expectations of higher outlays for healthcare.
    • The increase in public spending in the upcoming Budget will have to be financed to a large extent by garnering disinvestment proceeds and monetising assets.
    • To eliminate the need for the government’s involvement in non-strategic areas.

Disinvestment

  • Disinvestment means sale or liquidation of assets by the government, usually Central and state public sector enterprises, projects, or other fixed assets.
  • The government undertakes disinvestment to reduce the fiscal burden on the exchequer, or to raise money for meeting specific needs, such as to bridge the revenue shortfall from other regular sources.
  • Strategic disinvestment is the transfer of the ownership and control of a public sector entity to some other entity (mostly to a private sector entity).
    • Unlike the simple disinvestment, strategic sale implies a kind of privatization.
  • The disinvestment commission defines strategic sale as the sale of a substantial portion of the Government shareholding of a central public sector enterprises (CPSE) of upto 50%, or such higher percentage as the competent authority may determine, along with transfer of management control.
  • The Department of Investment and Public Asset Management (DIPAM) under the Ministry of Finance is the nodal department for the strategic stake sale in the Public Sector Undertakings (PSUs).
  • Strategic disinvestment in India has been guided by the basic economic principle that the government should not be in the business to engage itself in manufacturing/producing goods and services in sectors where competitive markets have come of age.
    • The economic potential of such entities may be better discovered in the hands of the strategic investors due to various factors, e.g. infusion of capital, technology up-gradation and efficient management practices etc.

Source:TH

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