Budget 2019: What is disinvestment target?

As Modi government 2.0 gears up to table its Union Budget 2019 on July 5, all eyes and ears will be set on Finance Minister Nirmala Sitharaman and what her ministry has in store in terms of tax exemptions, new schemes and fund allocations, among others.

Reading the Budget 2019 fine-print and breaking it down can come with the understanding of some important terms and concepts that find their place in the Budget.

Here's looking at one such concept: Disinvestment and Disinvestment Target

Disinvestment or divestment can be defined as the government's action of selling or liquidating its stake in a public sector unit asset or subsidiary.

This is done when PSUs start turning into liabilities and start showing a negative rate of return, in turn pressuring government resources. In such cases, disinvestment helps bring down the financial burden being imposed by inefficient PSUs on the public finances, raise money and put the proceeds to better use.

Read: Budget 2019: What is Fiscal Policy?

Disinvestment is an annual exercise with the government setting a disinvestment target for select PSUs for the upcoming financial year. The idea was introduced in the 1991 interim Budget by the then Finance Minister Manmohan Singh as the country was moving towards a more liberal, global and private sphere.

The Department of Disinvestment was set up as a separate entity in 1999 and turned into a ministry in 2001 during the AB Vajpayee regime which propelled disinvestment. In 2004, it was included as a department in the Ministry of Finance. The department was later renamed Department of Investment and Public Asset Management (DIPAM) in 2016.

On March 22, 2019, former Finance Minister Arun Jaitley tweeted that the government had exceeded the divestment target for FY19 by Rs 5,000 crore. The government had set a divestment target of Rs 80,000 crore in FY19.

 

 

For FY20, as per the 'Budget at a glance' document, a part of the Interim Budget announced by Piyush Goyal, the divestment target has been set at Rs 90,000 crore, up 12.5 per cent YoY.

Read: Interim Budget 2019-20: Piyush Goyal speech Full text

 

How does divestment work?

The government puts up a set of shares of the Central Public Sector Enterprises (CPSEs) for sale, open for buyers to trade in. This is done “to promote people’s ownership through public participation and improving efficiencies of CPSEs through accountability to its shareholders and to bring in operational efficiencies in CPSEs through strategic investment, ensuring their greater contribution to economy”.

The current disinvestment policy covers public ownership of CPSEs, disinvestment through minority stake sale -- the government retaining majority shareholding, i.e. at least 51 per cent of the shareholding and management control -- and strategic disinvestment -- sale of substantial portion of the government shareholding of a CPSE of up to 50 per cent, or a higher percentage along with transfer of management control which essentially means handing it over to the private players in the fray.

Also Read: Budget 2019: Revenue Budget vs Capital Budget

For instance, strategic disinvestment of Air India has been a point of concern for a while now with the government failing to sell 76 percent of its share in the airline last year.  The sale of the national carrier, which is neck deep in debt with losses ballooning, hasn't been able to attract private players.  By transferring about Rs 29,000 crore of working capital debt into a special purpose vehicle – Air India Asset Holdings Ltd (AIAHL), the government looks to put the pedal to the metal in FY20.

The government is also looking to privatise profit-making CPSEs, a contrast to the older policies of roping in private players only for loss-making CPSEs, with the NITI Aayog being asked to draw up a list of such CPSEs.

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