Published on: February 9, 2023


Disinvestment Why in news? bba87fd5f5ccd9c05ac48fcbb10e7a88 In the Union Budget for 2023-24, the government has set a disinvestment target of Rs.51,000 crore, 21% down nearly  from the budget estimate for the current year and also the lowest target in seven years.


What is disinvestment?

  • Disinvestment/ divestment means the government sells its assets or a subsidiary, such as a Central or State public sector enterprise.
  • The Union Finance Ministry has a separate department for undertaking disinvestment-related procedures called the Department of Investment and Public Asset Management (DIPAM).
  • Government had introduced a new disinvestment policy in 2021 to maintain ‘bare minimum’ presence in strategic sectors like atomic energy, defence etc., and exit non-strategic sector enterprises.

What are the types of disinvestments?

Minority disinvestment, majority disinvestment, and complete privatisation are the three main approaches to disinvestment.

  • Minority disinvestment: The government retains a majority in the company, typically greater than 51%, thus ensuring management control.
  • Majority divestment: The government hands over control to the acquiring entity but retains some stake
  • In complete privatisation, 100% control of the company is passed on to the buyer.

Why government will undertake disinvestments ?

  • The government may disinvest in order to reduce the fiscal burden or bridge the revenue shortfall for that year.
  • It also uses disinvestment proceeds to finance the fiscal deficit, to invest in the economy and development or social sector programmes, and to retire government debt.
  • Disinvestment also encourages private ownership of assets and trading in the open market. If successful, it also means that the government does not have to fund the losses of a loss-making unit anymore.
  • The stock market have the listing of shares of a bunch of public sector firms