The Ministry of Finance recently announced an extension of the bidding deadlines for the strategic disinvestment of Pawan Hans, a New Delhi-based helicopter service company. Citing logistical challenges due to the Covid-19 pandemic, the move comes as part of the government’s efforts to raise funds through disinvestment. The ongoing pandemic situation has inevitably affected the planned disinvestments, including such significant enterprises as Air India and Bharat Petroleum Corporation Limited.
Background: Government’s Disinvestment Target for 2020-2021
The government has set an ambitious disinvestment target of Rs. 2.1 lakh crore for the financial year 2020-21. However, only about Rs. 14,000 crore has been raised so far through minority stake sales, hinting at the difficulties faced during the pandemic.
New Public Sector Policy
As a segment of the ‘Aatmanirbhar Bharat Abhiyan’ initiative, the government declared in May 2020 that there would be a maximum of four public sector companies in the strategic sectors. Firms under state ownership in other segments will gradually undergo privatisation. A list of strategic sectors will be notified where one to four public sector enterprises will exist along with private sector companies. Central Public Sector Enterprises (CPSEs) in other sectors are subject to privatisation, depending on feasibility.
Current Situation
The bidding deadline for the disinvestment of Pawan Hans has been extended by a month. However, strategic sales of public sector units such as Air India and Bharat Petroleum Corporation Limited may not conclude within this year. The LIC Act of 1986 necessitates further amendments for the Life Insurance Corporation of India to be listed in the markets.
Need for Disinvestment Proceeds
Government resources need to be increased for supporting economic recovery and meeting higher healthcare outlays. Much of the boost in public spending in the forthcoming budget will be financed by disinvestment proceeds and monetising assets. Disinvestment eliminates governmental involvement in non-strategic sectors.
Understanding Disinvestment
Disinvestment involves selling or liquidating government assets, usually associated with Central and state public sector enterprises. Reasons for disinvestment include reducing the fiscal burden or raising money to address specific needs such as revenue shortfalls. Strategic disinvestment entails transferring ownership and management control of a public sector entity to another entity, often in the private sector.
A strategic sale, unlike simple disinvestment, implies privatisation. It involves selling a considerable portion of government shareholding in a Central Public Sector Enterprises (CPSE), along with transfer of management control.
The Department of Investment and Public Asset Management (DIPAM) under the Ministry of Finance oversees strategic stake sales in Public Sector Undertakings (PSUs).
Strategic disinvestment in India is based on the economic principle that the government should not participate in goods and services production sectors where competitive markets have matured. Entities’ economic potential may be better exploited by strategic investors due to several factors such as capital infusion, technology upgrades, and efficient management practices.
