Disinvestment is defined as the action of an organisation (or government) selling or liquidating an asset or subsidiary.
The new economic policy initiated in July 1991 indicated the poor state of PSUs. Inefficient PSUs had become and were continuing to be a drag on the Government’s resources turning to be more of liabilities to the Government than being assets. Many undertakings traditionally established as pillars of growth had become a burden on the economy. The national gross domestic product and gross national savings were also getting adversely affected by low returns from PSUs.
Hence, the need for the Government to get rid of these units and to concentrate on core activities was identified. The Government also took a view that it should move out of non-core businesses, especially the ones where the private sector had now entered in a significant way. Finally, disinvestment was also seen by the Government to raise funds for meeting general/specific needs.
In this direction, the Government adopted the ‘Disinvestment Policy’. This was identified as an active tool to reduce the burden of financing the PSUs.
objectives of disinvestment
The following main objectives of disinvestment were outlined:
• To reduce the financial burden on the Government
• To improve public finances
• To introduce, competition and market discipline
• To fund growth
• To encourage wider share of ownership
• To depoliticise non-essential services
Importance of Disinvestment
The importance of disinvestment lies in utilisation of funds for:
• Financing the increasing fiscal deficit
• Financing large-scale infrastructure development
• For investing in the economy to encourage spending
• For retiring Government debt- Almost 40-45% of the Centre’s revenue receipts go towards repaying public debt/interest
• For social programs like health and education
