Syllabus: GS3/ Economy
Context
- The Union Budget 2026–27 reiterates the government’s preference for growth-led fiscal consolidation, balancing deficit reduction with sustained capital expenditure, and disinvestment.
About
- Economic growth has been prioritised over fiscal deficit reduction to sustain demand and investment.
- Capital expenditure and infrastructure spending have been protected due to their high growth multiplier effects.
- The fiscal deficit is projected at 4.4% of GDP in FY26 and 4.3% in FY27, reflecting gradual consolidation.
What is PSU Disinvestment?
- PSU disinvestment refers to the process by which the government reduces its ownership stake in Central Public Sector Enterprises (CPSEs).
- It can involve partial sale, strategic sale, or increase in public shareholding, while retaining or transferring management control.
- Disinvestment is distinct from privatisation, as ownership and control may still remain with the government.
- Department of Investment and Public Asset Management (DIPAM):
- DIPAM is a Department under the Ministry of Finance.
- It deals with all matters relating to management of Central Government investments in equity including disinvestment of equity in Central Public Sector Enterprises(CPSE’s).
Modes of Disinvestment of CPSEs
- Strategic Disinvestment: It implies the entire or substantial sale of Government shareholding of a CPSE along with transfer of management control.
- Minority Stake Sale: Minority stake sale in certain CPSEs are carried out without transfer of management control through various SEBI-approved methods like Initial Public Offer (IPO), Offer for Sale (OFS) and Buyback of shares etc.
Objectives of PSU Disinvestment
- To mobilise non-tax revenue and reduce dependence on borrowing.
- To improve efficiency, productivity, and corporate governance in CPSEs.
- To enable the government to reallocate resources towards social and infrastructure sectors.
- To support fiscal consolidation without compressing productive expenditure.
Challenges in PSU Disinvestment
- Market-related constraints: Volatility in equity and debt markets affects valuation discovery and optimal timing of disinvestment.
- Labour concerns: Resistance from employee unions stems from fears of job losses, wage restructuring, and dilution of social security.
- Procedural delays: Lengthy approval processes, inter-ministerial coordination issues, and litigation delay execution.
- Sector-specific investor limitations: Certain CPSEs operate in sectors with low profitability or high regulation, limiting investor appetite.
- Strategic disinvestment becomes difficult where long-term commercial viability is uncertain.
- Operational inefficiencies of CPSEs: Persistent underperformance, high legacy costs, and outdated technology reduce asset attractiveness.
Way Ahead
- Transparency in timelines and methods will enhance investor confidence.
- Cleaning up balance sheets, resolving legacy liabilities, and rationalising manpower before disinvestment will improve asset attractiveness.
Source: IE
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