What is Disinvestment?

Disinvestment in India meaning: Disinvestment means sale or liquidation of assets by the government, usually Central and state public sector enterprises, projects, or other fixed assets.

disinvestment in india, disinvestment meaning, disinvestment newsDisinvestment definition: 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.

Disinvestment in India meaning: 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. In some cases, disinvestment may be done to privatise assets. However, not all disinvestment is privatisation. Some of the benefits of disinvestment are that it can be helpful in the long-term growth of the country; it allows the government and even the company to reduce debt. Disinvestment allows a larger share of PSU ownership in the open market, which in turn allows for the development of a strong capital market in India.

Main objectives of Disinvestment in India:

  • Reducing the fiscal burden on the exchequer
  • Improving public finances
  • Encouraging private ownership
  • Funding growth and development programmes
  • Maintaining and promoting competition in the market

Are disinvestment and privatisation related?

The government, whenever it so desires, may sell a whole enterprise, or a majority stake in it, to private investors. In such cases, it is known as privatisation, in which the resulting ownership and control of the organisation does not rest with the government. The government usually avoids doing this. The government mostly retains more than half of the stake in the public sector enterprise so that the control remains in its hands. But when it doesn’t, then the ownership is transferred to the private sector, which results in privatisation. It is also known as majority disinvestment or complete privatisation wherein 100 per cent control goes to the private sector.

What do you mean by disinvestment policy of government of India?

There is a separate department under the Ministry of Finance which handles all disinvestment-related works for the government. On 10 December 1999, the Department of Disinvestment was set up as a separate department and later renamed as Department of Investment and Public Asset Management. Disinvestment targets are set under each Union Budget, and every year the targets change. The government takes the final decision on whether to raise the divestment target or not.

Since the late 1990s, disinvestment has become an almost regular feature of the Union budgets under successive governments, which set a target each year to raise funds from stake sales in public sector enterprises. Disinvestment has led to mixed results for the governments in terms of meeting the revenue targets. Governments select disinvestment candidates based on various factors, such as its existing stake in the company, private sector interest in ownership of that enterprise, general market conditions, expected value realisation etc.

Get live Stock Prices from BSE and NSE and latest NAV, portfolio of Mutual Funds, calculate your tax by Income Tax Calculator, know market’s Top Gainers, Top Losers & Best Equity Funds. Like us on Facebook and follow us on Twitter.

Next Stories
1What is Long Term Capital Gains Tax?
2What is Repo Rate?
3What is Repo Linked Lending Rate (RLLR)?