{"id":41507,"date":"2025-04-18T20:29:13","date_gmt":"2025-04-18T14:59:13","guid":{"rendered":"https:\/\/www.nextias.com\/ca\/?p=41507"},"modified":"2025-04-18T20:29:15","modified_gmt":"2025-04-18T14:59:15","slug":"disinvestment-in-india-path-for-fiscal-sustainability","status":"publish","type":"post","link":"https:\/\/www.nextias.com\/ca\/editorial-analysis\/18-04-2025\/disinvestment-in-india-path-for-fiscal-sustainability","title":{"rendered":"Disinvestment in India: Path for Fiscal Sustainability"},"content":{"rendered":"\n<p><strong>Syllabus: GS3\/Economy<\/strong><\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>Context<\/strong><\/h2>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Recent developments indicate that the Indian government may be losing momentum in its disinvestment drive, raising concerns about its long-term economic implications.<\/li>\n<\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>About the Disinvestment Strategy in India<\/strong><\/h2>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Disinvestment refers to the process through which the <strong>government sells or liquidates its ownership<\/strong> stake in <strong>public sector enterprises (PSEs)<\/strong>.<\/li>\n\n\n\n<li>It aims at promoting efficiency, enhancing competitiveness, and generating non-tax revenue.<\/li>\n\n\n\n<li><strong>In India<\/strong>, disinvestment began during the <strong>Economic Reforms of 1991,<\/strong> aimed to reduce the fiscal burden and bring in managerial efficiency.<\/li>\n\n\n\n<li>It is spearheaded by the Department of Investment and Public Asset Management <strong>(DIPAM), Ministry of Finance<\/strong>.<\/li>\n\n\n\n<li>As per DIPAM, the objectives include:\n<ul class=\"wp-block-list\">\n<li>Reducing the fiscal burden on the exchequer;<\/li>\n\n\n\n<li>Improving public finance;<\/li>\n\n\n\n<li>Encouraging wider shareholding in public enterprises;<\/li>\n\n\n\n<li>Introducing private sector efficiency into PSEs;<\/li>\n\n\n\n<li>Unlocking value from underperforming assets;<\/li>\n<\/ul>\n<\/li>\n\n\n\n<li>DIPAM manages government equity in CPSEs and ensures transparency in the sale of shares or assets.<\/li>\n<\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>Types of Disinvestment<\/strong><\/h2>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>Minority Disinvestment: <\/strong>Government retains control.<\/li>\n\n\n\n<li><strong>Majority Disinvestment:<\/strong> Transfer of management control.<\/li>\n\n\n\n<li><strong>Strategic Disinvestment:<\/strong> Complete transfer of ownership and control.<\/li>\n<\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>Changing Approach to Disinvestment<\/strong>&nbsp;&nbsp;<\/h2>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>Policy Evolution:<\/strong> The 2021-22 Budget introduced a new public sector policy, emphasizing minimal government presence in CPSEs.\n<ul class=\"wp-block-list\">\n<li>It proposed to have a <strong>minimal presence in strategic sectors<\/strong>.<\/li>\n\n\n\n<li>In<strong> non-strategic sectors<\/strong>, the CPSEs will be either<strong> privatised or closed down.<\/strong><\/li>\n<\/ul>\n<\/li>\n\n\n\n<li><strong>Shift Toward Value Creation:<\/strong> Officials have reiterated that the focus remains on value creation rather than explicit disinvestment targets.\n<ul class=\"wp-block-list\">\n<li>The government raised only \u20b910,000 crore through disinvestment in 2024-25, despite a vibrant equity market.<\/li>\n\n\n\n<li>It is important to note that the<strong> overall fundraising in the equity market<\/strong> in <strong>2024-25 stood at over ~3.7 trillion<\/strong>, which was about 90% higher than in the previous year.<\/li>\n<\/ul>\n<\/li>\n<\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>Challenges in Disinvestment<\/strong>&nbsp;&nbsp;<\/h2>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>Implementation Gaps: <\/strong>Despite integrating the DPE into the Ministry of Finance in 2021, progress on the new policy has been slow.\n<ul class=\"wp-block-list\">\n<li>Disinvestment has often been driven by the need to reduce fiscal deficits rather than as a sustained policy objective.<\/li>\n<\/ul>\n<\/li>\n\n\n\n<li><strong>Political Resistance:<\/strong> Disinvestment has faced opposition, often portrayed as <strong>\u2018selling the family silver\u2019.<\/strong>\n<ul class=\"wp-block-list\">\n<li>A lack of political consensus has hindered the aggressive pursuit of disinvestment programs.<\/li>\n<\/ul>\n<\/li>\n\n\n\n<li><strong>Economic Implications:<\/strong><strong>CAG Report (2022)<\/strong> revealed that 198 government companies had accumulated losses exceeding \u20b92 trillion, eroding the net worth of 88 companies.\n<ul class=\"wp-block-list\">\n<li>These losses continue to burden the exchequer, underscoring the need for decisive action.<\/li>\n<\/ul>\n<\/li>\n\n\n\n<li><strong>Flexibility vs. Neglect: <\/strong>While the absence of explicit disinvestment targets allows flexibility, it risks neglecting this critical revenue stream.<\/li>\n<\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>Key Government Steps<\/strong><\/h2>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>Merging of Related Departments:<\/strong> The Union government is in the process of merging two departments \u2014 the <strong>Department of Public Enterprises (DPE) and DIPAM<\/strong> in the <strong>Ministry of Finance<\/strong>. The idea is to improve the efficiency and performance of CPSEs.<\/li>\n\n\n\n<li><strong>Union Budget (2021-22):<\/strong> A <strong>Public Sector Policy<\/strong> stated that the government would minimise its presence in CPSEs.\n<ul class=\"wp-block-list\">\n<li>It proposed to have a <strong>minimal presence in strategic sectors<\/strong>.&nbsp; Strategic sectors include atomic energy, space, defense, transport, telecommunications, power, petroleum, coal, and banking.<\/li>\n\n\n\n<li>In<strong> non-strategic sectors<\/strong>, the CPSEs will be either<strong> privatised or closed down.<\/strong><\/li>\n<\/ul>\n<\/li>\n<\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>Other Important Initiatives<\/strong><\/h2>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>Monetization of Idle Assets:<\/strong> The government has introduced a<strong> Special Purpose Vehicle (SPV)<\/strong> to monetize surplus land and other non-core assets of CPSEs.\n<ul class=\"wp-block-list\">\n<li>It aims to unlock the value of idle assets and generate additional revenue.<\/li>\n<\/ul>\n<\/li>\n\n\n\n<li><strong>Incentives for States:<\/strong> The government has proposed an incentive package of central funds to encourage states to disinvest their public sector enterprises.<\/li>\n\n\n\n<li><strong>Initial Public Offerings (IPOs) and Strategic Sales:<\/strong> The government has utilized methods like IPOs, Offer for Sale (OFS), and strategic sales to divest its stake in CPSEs.\n<ul class=\"wp-block-list\">\n<li>Key examples include the privatization of <strong>Air India<\/strong> and the proposed IPO of <strong>Life Insurance Corporation (LIC).<\/strong><\/li>\n<\/ul>\n<\/li>\n\n\n\n<li><strong>National Investment Fund (NIF):<\/strong> It was established in 2005, that channels proceeds from disinvestment into developmental projects and social sector programs.<\/li>\n<\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>Way Forward&nbsp;&nbsp;<\/strong><\/h2>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>Targeted Approach:<\/strong> The government should prioritize disinvestment in non-strategic sectors while retaining control in areas critical to national security and public welfare.<\/li>\n\n\n\n<li><strong>Stakeholder Engagement: <\/strong>Transparent communication with employees, unions, and the public can help address concerns and build consensus.<\/li>\n\n\n\n<li><strong>Strengthening DIPAM:<\/strong> DIPAM must streamline processes and ensure timely execution of disinvestment plans.<\/li>\n<\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>Conclusion<\/strong><\/h2>\n\n\n\n<ul class=\"wp-block-list\">\n<li>The merger of DPE and Dipam marks a significant step in redefining the government&#8217;s approach to CPSEs.<\/li>\n\n\n\n<li>While the focus on value creation is commendable, the merits of an aggressive disinvestment program cannot be overlooked.<\/li>\n\n\n\n<li>Achieving a balance between managing CPSEs and pursuing disinvestment will require political will, strategic planning, and efficient execution.<\/li>\n<\/ul>\n\n\n\n<figure class=\"wp-block-table\"><table class=\"has-background\" style=\"background-color:#fff2cc\"><tbody><tr><td><strong>Daily Mains Practice Question[Q]<\/strong><br>How can the government balance its disinvestment goals with the need to address concerns like market volatility and strategic interests in critical sectors?<\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n<p><a href=\"https:\/\/www.business-standard.com\/opinion\/editorial\/changing-objectives-centre-must-not-lose-sight-of-disinvestment-125041601411_1.html\" rel=\"nofollow noopener\" target=\"_blank\">Source: BS<\/a><\/p>\n\n\n\n<div class=\"wp-block-buttons is-layout-flex wp-block-buttons-is-layout-flex\">\n<div class=\"wp-block-button\"><a class=\"wp-block-button__link wp-element-button\" href=\"https:\/\/www.nextias.com\/ca\/wp-content\/uploads\/2025\/04\/UPSC-Editorial-Analysis-18-April-2025.PDF.pdf\">Download PDF<\/a><\/div>\n<\/div>\n","protected":false},"excerpt":{"rendered":"<p>Recent developments indicate that the Indian government may be losing momentum in its disinvestment drive, raising concerns about its long-term economic implications.<\/p>\n","protected":false},"author":15,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[22],"tags":[],"class_list":["post-41507","post","type-post","status-publish","format-standard","hentry","category-editorial-analysis"],"acf":[],"jetpack_featured_media_url":"","_links":{"self":[{"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/posts\/41507","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/users\/15"}],"replies":[{"embeddable":true,"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/comments?post=41507"}],"version-history":[{"count":2,"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/posts\/41507\/revisions"}],"predecessor-version":[{"id":41545,"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/posts\/41507\/revisions\/41545"}],"wp:attachment":[{"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/media?parent=41507"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/categories?post=41507"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/tags?post=41507"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}