The Indian government has been grappling with a substantial fiscal deficit due to achieving merely 3% of budgeted revenues from disinvestment in the fiscal year 2020-2021. Fiscal deficit is defined as “the excess of total disbursements from the Consolidated Fund of India, other than the repayment of the debt, over total receipts into the Fund, not counting the debt receipts during a financial year”.
Disinvestment Targets for 2020-21
In the Union Budget of 2020, the Finance Minister announced a disinvestment target of Rs. 2.1 lakh crore to control the fiscal deficit. However, the total disinvestment receipts amounted to roughly Rs. 17.9 thousand crores, a meager 3% of the set target.
Reasons for Shortfall in Revenue
The primary reasons for lower disinvestment revenue are the ambitious annual targets, which were three to four times the usual expected disinvestment revenue. The process was further slowed down by the sluggish public asset sales marked for disinvestment. Additionally, the Covid-19 pandemic significantly impacted all facets of the government’s functioning this year. Historically, apart from a few years, the government has struggled to raise the targeted money from disinvestment at the start of the year.
Understanding Disinvestment
Disinvestment refers to the sale or liquidation of government-owned assets, typically Central and state public sector enterprises, projects, or other assets. The government resorts to disinvestment to lessen the fiscal burden on the exchequer or to raise funds for specific needs, such as bridging revenue shortfalls from regular sources.
Types of Disinvestment Methods
– Minority Disinvestment: The government retains a majority stake (usually more than 51%) after disinvestment, ensuring management control.
– Majority Disinvestment: The government retains a minority stake after disinvestment, meaning it sells off a majority stake.
– Complete Disinvestment or Privatization: The government completely disinvests from the company, passing 100% control to a buyer.
Reasons for Disinvestment in PSUs
Disinvestment is pursued to enhance efficiency, insulate PSUs from political interference, ensure economic and corporate interests, stimulate more efficient management through private or corporate ownership, plug budget deficits, and redirect funds to sectors like infrastructure and welfare schemes.
Changed Perception of Disinvestment
Pre-economic liberalisation, disinvestment was criticised as selling off family silver. However, post-liberalisation, reducing the government stake in sectors where government presence isn’t mandatory has been welcomed.
Nodal Agency for Disinvestment
The Department of Investment and Public Asset Management (DIPAM) under the Ministry of Finance handles the Centre’s investments in PSUs. The sale of the Centre’s assets falls under DIPAM’s mandate.
