BY MAHIMA JEJANI
The Union Budget this year has unveiled a disinvestment target of Rs.1.75 lakh crore from the sale of public sector companies and financial investment, including 2 PSUs banks and one government owned insurance company in the next fiscal year. The disinvestment target is lower than the original target, but it is a big decision given the government will just raise Rs 32,000 crore in FY21 and unlikely to achieve its projected target.
What is Disinvestment?
Disinvestment is the action of government of liquidating its assets. Such assets can either reduce the share of the government or it can also change the ownership of the firm.
What are PSUs (Public Sector Undertaking)?
A state-owned enterprise in India is called a Public Sector Undertaking (PSU) or Public Sector Enterprise. These companies are owned by the Union government of India or one of the many states or Govt. of Union Territory or together in parts.
Why government does disinvestment in PSUs?
There are two main reasons of the disinvestment in the PSUs. One is to improve the efficiency of the government owned organisations. As the PSUs are managed and run by the government on a daily basis , there are the chances that political intervention and inefficient government employees might hinder the performance and corporate interest of these PSUs.
The second reason, is to meet the expenditure of the government, when it fails to meet its expenditure from tax revenues. With the sale of these assets and transfer of the ownership, the government can reduce its debt liabilities and also raise the money for the investment in other sectors of the economy- education, infrastructure, and welfare of the poor. Disinvestment also plays an integral part in opening up the new opportunities for the private sector.
The disinvestment process was started in the year 1991 to help the government reduce the fiscal deficit by barring two small units CMC Limited and Patherele Concrete. Major disinvestments were taken by the BJP-led NDA government from 1999-2004. The Vajpayee Government had introduced Department of Disinvestment which was headed by Arun Shourie in 1999. Then, BJP had made the strategic disinvestment in Bharat Aluminium Company (BALCO), Hindustan Zinc (both to Sterlite companies), Indian Petroleum Corporation Limited (to Reliance Industries) and VSNL (to the Tata Group). The disinvestment target has been rarely achieved in this country. Except for a rare few years the government has failed to achieve its projected targets.
This current fiscal year is also poor in this regard according to the experts. Last year, on the path of Narendra Modi popular slogan “Minimum government, maximum governance” the Union budget had announced the target of Rs 2.1 lakh crore which was three to four times the usual target.
The disinvestment target of PSUs has fallen short year after year, achieving Rs 4.04 lakh crore as of FY21.
Road Map of Disinvestment Target of FY22:
The Finance Minister Nirmala Sitharaman has announced some big moves for this fiscal year. She has announced the disinvestment of BPCL (Bharat Petroleum Corporation Limited), Shipping Corporation of India, the Container Corporation of India, IDBI, Bharat Earth Movers Limited, Pawan Hans and Neelachal Ispat Nigam, would be achieved in the coming fiscal year. But the big question in the mind of all is, will they be achieved given the pace of disinvestment in the fiscal year FY21. Department of Investment and Public Asset management will play the important role. Its role will be to make the PSUs look attractive to the investors. As, the part of “AtmaNirbhar Bharat”, the finance minister has announced to classify the PSUs as strategic and non-strategic sectors, and exit from the non-strategic ones. The Niti Aayog will be the incharge to classify which public sector should be classified as the non-strategic sectors. The government said that it will maintain governance in the few strategic sectors, these include atomic energy, space and defence, transport and communications, power, telecommunications, power, petroleum, coal, banking and financial services.
The government also announced that the public sectors related to the agriculture, such as the provisions of seeds to farmers, or procurement and distribution of food for the public distribution system, will not be up for the sale. The government also decided to increase the FDI (Foreign Direct Investment) limit in insurance companies from 49% (current) to 75%. This will help the government to privatise public insurance companies.
The underlining hope is that the proposed plan will further strengthen the financial sector besides garnering additional revenue for the government.
But the question is ,will the government meet disinvestment targets? Only the time will tell us.
ABOUT THE AUTHOR
Mahima Jejani is currently a second year Economics student at Kirori Mal College, University of Delhi. She has a keen interest in finance and economics, and wishes to explore opportunities in these fields. Apart from this, she is interested in working for projects that cater sustainability.
Disclaimer: The views expressed in this article are the author’s own and do not necessarily reflect the views of the organization.
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