Disinvestment on development (Live Mint)

Mains Paper 3 : Economy
Prelims level : Central Public Sector Enterprises
Mains level : Disinvestment policy in India

Context

• The government will reinitiate the process of divesting its stake in national carrier Air India, even as it increased its disinvestment target in the Union Budget 2019-20 presented by Finance Minister Nirmala Sitharaman.
• The target for disinvestment receipts has increased to Rs 1.05 trillion for FY20, from Rs 90,000 crore in the interim Budget presented in February. Significantly, the finance minister said that the government’s stake in non-financial public sector units can go below the majority stake of 51 per cent.
• Instead of holding a direct stake of 51 per cent in PSUs, “government-controlled institutions” can chip in the remaining sum which the government will look to divest.
• This move will enable the government to retain control over such firms. The Finance Minister reiterated that the government will make sure that its control is not diluted after lowering its stake in public sector undertakings (PSUs) to below 51 per cent.
• The government will also continue with the strategic divestment of select Central Public Sector Enterprises (CPSEs).

Significance:

• Government of India sets disinvestment targets in most budgets since 1991. Although the chief aim is to add to the exchequer and bridge the fiscal deficit, disinvestment also allows the government to offload its burden by bringing private players onboard.
• However, meeting the disinvestment targets has become quite a formidable task.

Panel discussion and suggestions

• The government in January 2018 allowed foreign airlines to buy a stake of up to 49% in Air India with prior government approval before putting the carrier for sale.
• Until then, foreign airlines were allowed as much as 49% in private Indian airlines, but not in Air India. The government however later clarified that “substantial ownership and effective control of Air
  India will remain with Indian nationals" post any stake sale.
• Here, strategic disinvestment approach is encouraged. For instance, BALCO’s disinvestment in the past.
• 51% of the share of government is appreciated.
• Mixed strategy can be followed too as in some cases strategic disinvestment will do and in some others, some other minor disinvestments can be encouraged to generate revenue.

Some of the salient features of disinvestment are:

• Disinvestment involves sale of only part of equity holdings held by the government to private investors.
• Disinvestment process leads only to dilution of ownership and not transfer of full ownership.
• While privatization refers to the transfer of ownership from government to private investors.

Problems of the PSUs

• The most important criticism levied against public sector undertakings has been in relation to the capital employed, the level of profits has been too low. Even the government has criticized the public sector undertakings on this count. Of the various factors responsible for low profits in the public sector Undertakings, the following are particularly important:-
• Price policy of public sector undertakings,
• Underutilization of capacity,
• Problem related to planning and construction of projects,
• Problems of labor, personnel and management,
• Lack of autonomy.

Way forward

• Ailing PSU’s should be divested. Landed assets should be diverted appropriately and dilution of ownership should be resolved.
• PSU’s those do not have a strategic role in the economy should be disposed off through the route of disinvestment.

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Prelims Questions:

Q.1) With respect to “Fifteenth Finance Commission”, consider the following statements:
1. It has been constituted under the chairmanship of Vijay L. Kelkar in pursuance of Finance Commission (Miscellaneous Provisions) Act, 1951.
2. President may by law determine the qualifications which shall be requisite for appointment as members of the Commission and the manner in which they shall be selected.

Which of the statements given above is/are correct?
A. 1 only
B. 2 only
C. Both
D. None

Answer: D
Mains Questions:
Q.1) What are the panel discussion and suggestions on public disinvestment system in India?