Trading a shareholding in a firm, franchise, or other assets is referred to as divesting or disinvestment. Governments and corporations use divestiture to reduce the liabilities from non-performing assets, quit a certain sector, or raise the funds. To generate cash, administrations frequently sell interests in public-sector firms. The central government has lately chosen this option to leave loss-making companies and raise non-tax income.
Following a shift in macroeconomic strategy in the early nineties dubbed ‘Market liberalization’ the Indian government began liquidating its ownership in public-sector firms. This has aided the Government in reducing its economic imbalances.
During Atal Bihari Vajpayee’s first term as the PM of India, the BJP-led National Democratic Alliance (NDA) administration decided to make tactical disinvestments in vital PSBs such as VSNL (to the Tata group) Hindustan Zinc, Bharat Aluminium Company (Balco) and (both to Sterlite Industries), and Indian Petrochemicals Corporation Limited (to Reliance Industries).
The Narendra Modi-led administration attempted but failed, to abandon debt-laden Air India. Nonetheless, it surpassed its disposal objective of Rs 72,500 crore in 2017-18. This was mostly accomplished through planned cross-divestment, in which one PSU purchases a share in the other, allowing the government to increase income while maintaining management of the enterprise.
Other options included insurance company IPO, mergers of public sector enterprises, CPSE exchange-traded funds (ETFs), and many repurchases.
Government Disinvestment Target for 2022-23
Disinvestment has been the year’s keyword. The biggest momentous moment to highlight presently has been the smooth auction of the national airline Air India to the Tata group for Rs 18,000 crore. However, only 15%of it went to the government, and the remainder went to pay off Air India’s massive debt.
Following several perceived issues, the selling off of Air India offered optimism in meeting the divestment objective of Rs 1.75 lakh billion for FY22. Based on the successful selling of Air India, the authorities proceeded with the LIC IPO in May 2022.
Key disinvestments scheduled for the current fiscal year include the IPOs of LIC, Bharat Petroleum Corporation Ltd (BPCL), RINL, and Pawan Hans. Analysts say a 10% IPO of LIC stocks might generate more than Rs. 1 lakh crore.
Having missed the disinvestment objective for 3 years in running, the Government has earned 23,575 crore rupees in disinvestment profits via the Life Insurance Corporation of India IPO and the Oil and Natural Gas Corporation offered for acquisition in the current fiscal year.
If the Centre effectively divests HZL, it would be within touching proximity of its Rs 65,000-crore divestiture objective for the fiscal year 2022-23.
As per sources, the administration is on track to privatize two PSBs: the Central Bank of India and the Indian Overseas Bank. It also intends to divest subsidiary holdings in ITC and Axis Bank. In addition, it is attempting to finalize the transfer of the Shipping Corporation of India.
Container Corporation of India is likewise planning a tactical exit. According to experts, previous disinvestment objectives were aggressive, but the new fall in the RE forecast is reasonable and feasible.