DISINVESTMENT v/s DIVESTMENT

Definitions:

• Ø  Disinvestment is defined simply as the withdrawal or reduction of an investment. 
• Divestment is the process of selling off part of a business or investments.

Understanding Better with respect to Government:

For Government disinvestment is a process of reducing its investments in Public Sector Units (PSU). The government sells off its investments in PSU’s to private players but retains the ownership. It means that the government can sell its stakes up to a maximum of 49 percent. For example: sale of stake in HPCL.

Divestment is also known as divestiture is a process of selling a part of the business to private players. Here in this process the government loses its ownership from that part of the business. Divestment is done when a particular division of an organization is not doing well. For example: selling the LPG arm INDANE of Indian Oil Corporation.

Objectives of Disinvestment:

·         To reduce the financial burden on the government.

·         To improve public finances.

·         To encourage private ownership.

·         To introduce, competition and market discipline.

·         To depoliticize essential services.

·         To help PSU to upgrade their technology to become competitive.

·         To rationalize and retrain their workforce.

·         To build competence and strengthen their R & D.

·         To initiate diversification and expansion programme.

Objectives of Divestment:

·         To restructure and modernize Public Sector Enterprise (PSE).

·         To make PSE more competitive in liberalized economy.

·         To ensure public scrutiny and accountability.

·         Amount generated can be used for welfare measures.

·         Government is for governance and not for business.

The process of disinvestment and divestment was started in the year 1991. It was first started by then Finance Minister Dr. Manmohan Singh. The process was fast tracked under Atal Bihari Vajpayee government by setting up a separate ministry of disinvestment. The present government has cleared the stake sale of about 23 public sector companies for disinvestment. The government has set a disinvestment target of Rs 2.10 lakh crore for the 2020-21 fiscal. Out of total disinvestment target, Rs 1.20 lakh crore will come from public sector undertakings and another Rs 90,000 crore from financial institutions.

Does disinvestment leads to privatization?

Not really, but depends on the percentage of disinvestment. If the government retains majority stake i.e. more than 51% of investment in an organization or PSE then the management control remains in its hands. But when it doesn’t, then the ownership is transferred to the private sector, which results in privatization.

Sources: Economictimes.indiatimes.com, Financialexpress.com, insightsonindia.com, Quora.com, Thehindu.com, Yourarticleslibrary.com

SUNIL GUNTUR