disinvestment in India-Has disinvestment lost priority or got held up?

Source: The post disinvestment in India has been created, based on the article “Has disinvestment lost priority or got held up?” published in “Live mints” on 1st February 2024.

UPSC Syllabus Topic: GS Paper3-Indian economy- resource mobilisation

News: The article discusses India’s slow progress in selling government-owned business shares, known as disinvestment. Despite plans to sell more, they have not met their targets.

What is the current status of disinvestment in India?

Disinvestment Target vs. Achievement: The Indian government planned to raise ₹51,000 crore through disinvestment in 2023-24 but has only achieved ₹12,504 crore so far.

Trend over the Years: There has been a declining trend in disinvestment targets and achievements. After an initial rise until 2020-21, the targets have been decreasing for three consecutive years.

Comparison with Past Performance: The government has consistently fallen short of its disinvestment goals, except in 2017-18 and 2018-19.

What are the benefits of disinvestment?

Bridging Fiscal Gaps: Disinvestment helps in raising funds for the government, aiding in managing fiscal deficits. The article mentions the target of ₹51,000 crore set for 2023-24 as an example.

Enhancing Economic Efficiency: Private sector participation is believed to bring greater efficiency. The disinvestment of Air India is cited as an instance where such a move can lead to improved business operations.

Promoting Market Discipline: The exposure of state-owned enterprises to market competition can lead to better management practices and operational efficiency.

What are the reasons for the slow progress of disinvestment in India?

Regulatory and Labor Hurdles: The process is complicated by regulatory approvals and labor relations, making it a slow and challenging task.

Political Challenges: There is significant political resistance, with opposition parties criticizing the sale of state-owned enterprises. This political opposition impacts the pace of disinvestment.

Economic Considerations: The government’s approach seems influenced by economic factors, possibly leading to a more cautious stance in selling assets.

Market Conditions: The disinvestment process is also affected by market conditions, which can vary and impact investor interest in state assets.

Focus on Selective Selling: The government appears to prefer selling underperforming businesses while retaining profitable ones, affecting the overall pace and scope of disinvestment.

What should be done?

1. The government should better explain the economic benefits of disinvestment to counter political resistance and public skepticism.
2. Focus on selling assets based on their market appeal, rather than just unloading underperforming ones. This includes considering the sale of profitable enterprises.
3. Despite challenges, the government should stay committed to the disinvestment agenda, showing political confidence and determination.

Question for practice:

Examine the reasons for India’s slow progress in disinvestment and suggest potential strategies to improve the situation.