{"id":92395,"date":"2021-03-05T10:52:32","date_gmt":"2021-03-05T05:22:32","guid":{"rendered":"https:\/\/blog.forumias.com\/?p=92395"},"modified":"2021-03-05T10:52:32","modified_gmt":"2021-03-05T05:22:32","slug":"issues-associated-with-governments-disinvestment-proposal","status":"publish","type":"post","link":"https:\/\/forumias.com\/blog\/issues-associated-with-governments-disinvestment-proposal\/","title":{"rendered":"Issues associated with Government\u2019s Disinvestment proposal"},"content":{"rendered":"<p><b>Synopsis<\/b><span style=\"font-weight: 400;\">: Some experts are expressing concern over the government&#8217;s disinvestment proposal. There is a need for adopting a cautious approach that augments rather than deteriorates public welfare.<\/span><\/p>\n<p><b>Background:<\/b><\/p>\n<ul>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">The government has set a target of 1.75 lakh crore rupees from the disinvestment of PSUs in the current financial year. Companies like Air India and BPCL will witness a strategic sale while an IPO (initial public offer) would be rolled out for LIC.<\/span>\n<ul>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\"><a href=\"https:\/\/forumias.com\/blog\/answeredwhat-do-you-understand-by-the-term-disinvestment-critically-examine-the-policy-of-disinvestment-in-india\/\">Disinvestment<\/a> of PSUs simply means withdrawal of the government\u2019s investment in public sector undertakings.<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\"><strong>Strategic Disinvestment<\/strong> involves a sale of 50% or more in a PSU along with transfer of management control.<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\"><strong>IPO<\/strong> means the offering of a company\u2019s shares to the public which results in a change of ownership. Post-IPO a company gets listed on a stock exchange.\u00a0\u00a0<\/span><\/li>\n<\/ul>\n<\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">The small industries and informal workers are already under severe stress post the demonization of 2016 and GST of 2017.\u00a0<\/span><span style=\"font-weight: 400;\">The pandemic and rising oil prices have further worsened their position.<\/span><\/li>\n<\/ul>\n<p><b>Why is the government disinvesting?\u00a0<\/b><\/p>\n<ul>\n<li style=\"font-weight: 400;\"><b>First<\/b><span style=\"font-weight: 400;\">, it will help in the generation of additional revenue for the government.<\/span><\/li>\n<li style=\"font-weight: 400;\"><b>Second<\/b><span style=\"font-weight: 400;\">, it will enhance the efficiency of PSUs with more efficient private management taking the charge.<\/span><\/li>\n<li style=\"font-weight: 400;\"><b>Third<\/b><span style=\"font-weight: 400;\">, it will allow the government more time to do core and crucial tasks.<\/span><\/li>\n<li style=\"font-weight: 400;\"><b>Fourth<\/b><span style=\"font-weight: 400;\">, it will reduce the government&#8217;s burden to consistently support and fund the sick units.<\/span><\/li>\n<\/ul>\n<p><span style=\"font-weight: 400;\">However, some experts are saying that the disinvestment might further increase the hardships of companies and the masses.\u00a0\u00a0\u00a0<\/span><\/p>\n<p><b>Issues with Disinvestment of PSUs<\/b><span style=\"font-weight: 400;\">:<\/span><\/p>\n<ul>\n<li style=\"font-weight: 400;\"><b>First<\/b><span style=\"font-weight: 400;\">, the <\/span><b>sale of profitable PSUs <\/b><span style=\"font-weight: 400;\">is just like selling the family&#8217;s silver to pay the grocer&#8217;s bill. This would give short-term results but long-term losses. Eg &#8211; a privatised LIC might be reluctant to meet long-term financing needs for infrastructure projects with long gestation periods.<\/span><\/li>\n<li style=\"font-weight: 400;\"><b>Second<\/b><span style=\"font-weight: 400;\">, the government sometimes<\/span><b> undervalues the companies <\/b><span style=\"font-weight: 400;\">to favor some industrialists. This was seen in the sale of\u00a0 Videsh Sanchar Nigam Limited (VSNL) and is criticised for strengthening crony capitalism.<\/span><\/li>\n<li style=\"font-weight: 400;\"><b>Third<\/b><span style=\"font-weight: 400;\">, the <\/span><b>government often fails to achieve huge disinvestment targets<\/b><span style=\"font-weight: 400;\">. Last year it received merely 32000 crores out of target sales of 2.1 lakh crore.<\/span><\/li>\n<li style=\"font-weight: 400;\"><b>Fourth<\/b><span style=\"font-weight: 400;\">, the <\/span><b>spirit of disinvestment is undermined<\/b><span style=\"font-weight: 400;\"> when one PSU is purchased by another. The Life Insurance Corporation (LIC) of India bailed out the Industrial Development Bank of India (IDBI).<\/span><\/li>\n<li style=\"font-weight: 400;\"><b>Fifth<\/b><span style=\"font-weight: 400;\">, disinvestment <\/span><b>ignores social justice <\/b><span style=\"font-weight: 400;\">as private players are not bound to give reservations to vulnerable sections. Further, they fire large numbers of workers and are reluctant to invest in backward regions, unlike PSUs.<\/span><\/li>\n<li style=\"font-weight: 400;\"><b>Sixth, the <\/b><span style=\"font-weight: 400;\">privatization of Public sector banks may not yield desired results. However, Private banks are driven by profit motives, and they are also suffering from corruption as seen in the recent Yes Bank case. Further, private players may shut down loss-making rural branches unlike public banks who also work for social welfare.\u00a0\u00a0\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\"><b>Lastly<\/b><span style=\"font-weight: 400;\">, privatisation is not always good if the economic situation is uncertain. This is seen by the lack of tangible results post heavy relaxation in corporate tax cuts since 2019.<\/span><\/li>\n<\/ul>\n<p><b>Way Forward:<\/b><\/p>\n<ul>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">The government must put the formula of valuing PSUs in the public domain to augment transparency.\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">The promise of exiting from all the sectors except the 4 strategic sectors can be changed to selling only the non-strategic and non-core sectors.<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">The public banks can be clubbed and recapitalized instead of outrightly selling them.<\/span><\/li>\n<\/ul>\n<p><span style=\"font-weight: 400;\">In a nutshell, the process should be carried on in such a way that it generates resources for the government, sets the right incentives for PSUs management, and rewards the investing public.<\/span><\/p>\n","protected":false},"excerpt":{"rendered":"<p>Synopsis: Some experts are expressing concern over the government&#8217;s disinvestment proposal. There is a need for adopting a cautious approach that augments rather than deteriorates public welfare. Background: The government has set a target of 1.75 lakh crore rupees from the disinvestment of PSUs in the current financial year. Companies like Air India and BPCL&hellip; <a class=\"more-link\" href=\"https:\/\/forumias.com\/blog\/issues-associated-with-governments-disinvestment-proposal\/\">Continue reading <span class=\"screen-reader-text\">Issues associated with Government\u2019s Disinvestment proposal<\/span><\/a><\/p>\n","protected":false},"author":61,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"jetpack_post_was_ever_published":false,"footnotes":""},"categories":[1230,9],"tags":[1308],"class_list":["post-92395","post","type-post","status-publish","format-standard","hentry","category-9-pm-daily-articles","category-public","tag-eco_0","entry"],"jetpack_featured_media_url":"","views":"","jetpack_sharing_enabled":true,"_links":{"self":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts\/92395","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/users\/61"}],"replies":[{"embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/comments?post=92395"}],"version-history":[{"count":0,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts\/92395\/revisions"}],"wp:attachment":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/media?parent=92395"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/categories?post=92395"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/tags?post=92395"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}