Government Budgets

Explained: Status and proceeds of Disinvestment


From UPSC perspective, the following things are important :

Prelims level: Disinvestment

Mains level: Deficit financing through disinvestment


In the Union Budget for 2023-24, the government has set a disinvestment target of ₹51,000 crore, down nearly 21% from the budget estimate for the current year and just ₹1,000 crore more than the revised estimate.

Lowest Disinvestment target in years

  • It is also the lowest target in seven years.
  • The Centre has not met the disinvestment target for 2022-23 so far.
  • It has realised ₹31,106 crore to date, of which, ₹20,516 crore or close to a third of the budgeted estimate came from the IPO of 3.5% of its shares in the Life Insurance Corporation (LIC).

What is Disinvestment?

  • Disinvestment or divestment, in this context, is when the government sells its assets or a subsidiary, such as a Central or State public sector enterprise.
  • There are the three main approaches to disinvestment
  1. Minority disinvestment: The government retains a majority in the company, typically greater than 51%, thus ensuring management control.
  2. Majority disinvestment: The government hands over control to the acquiring entity but retains some stake.
  3. Complete privatisation: 100% control of the company is passed on to the buyer.

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 depoliticize non-essential services.

Institutional mechanism


  • The Union Finance Ministry has a separate department for undertaking disinvestment-related procedures called the Department of Investment and Public Asset Management (DIPAM).

Why need disinvestment?

  • Reduce money crunch: The government may disinvest in order to reduce the fiscal burden or bridge the revenue shortfall for that year.
  • Deficit financing: It also uses disinvestment proceeds to finance the fiscal deficit, to invest in the economy and development or social sector programmes, and to retire government debt.
  • Promote private ownership facilitation: Disinvestment also encourages private ownership of assets and trading in the open market.
  • Do away with loss-making: If successful, it also means that the government does not have to fund the losses of a loss-making unit anymore.

Other importance of disinvestment lies in the utilization of funds for:

  1. Financing large-scale infrastructure development
  2. Investing in the economy to encourage spending
  3. For social programs like health and education

How has disinvestment fared in India?

Ans. Disinvestment in India has had mixed results.

  • Since the current government came to power in 2014, it has made significant progress in disinvestment, having raised a record ₹1.05 trillion (US$14.6 billion) for the fiscal year of 2017–18.
  • However, the government has also failed to reach its disinvestment targets in other years, due to various reasons such as market conditions, investor sentiment, and political opposition.
  • The government has also been criticized for not doing enough to find potential buyers for state-owned companies.
  • Despite this, recent years have seen several successful disinvestment deals, such as the strategic sale of Air India and the privatization of BPCL.

Issues with CPSEs through years

  • Inherent flaws in PSU’s: The entire PSU’s mechanism did not turn out as efficient as it ought to be, all thanks to the prevailing hierarchy and bureaucracy.
  • Lack of autonomy: Lack of autonomy, political interference, nepotism & corruption has further deteriorated the situation.
  • Revenue losses: Due to the expenditure on items such as interest payments, wages and salaries of PSU employees and subsidies, the Government is left with hardly any surplus for capital expenditure on social and physical infrastructure.
  • Lack of Competitiveness: In an era of LPG industrial competitiveness has especially assumed an important role, necessitating privatization or disinvestment of PSUs.
  • Poor performance: Despite the huge injection of funds in the past decades, the functioning of many public sector units (PSUs) has traditionally been characterized by poor management, slow decision-making procedures, lack of accountability, low productivity, unsatisfactory quality of goods, excessive manpower utilization etc.


  • Confronted with an unprecedented fiscal deficit and worried by an economy in crisis, the government has to find resources.
  • Disinvestment is a preferred option for ideological and practical reasons.
  • Short-term financial exigencies should not be the Centre’s sole reason for disinvestment in core sectors like petroleum.
  • The government could utilize the money gained by selling off PSUs to improve services in public goods like infrastructure, health and education.


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