Strategic Disinvestment

Strategic Disinvestment has been done as the government is required to relieve itself in terms of maintaining the burden of some public enterprises that are non-performing. This Strategic Disinvestment came with a governmental force, which is a major decision of India in order to sell Container Corporation, BPCL “Bharat Petroleum Corporation”, and Air India. According to the 2021 Union Budget, the target of Strategic Disinvestment has been raised up to “2.14 Lakh Crore” and that is three times larger than previous year which was only Rs.67000. The main focus of this strategy is to raise money to meet the public needs and reduce the “fiscal burden”.

Strategic Disinvestment Facts

Disinvestment in asset liquidation is always being held by the Indian government. There are PSU’s “Public Sector Undertakings” and state enterprises or some other fixed assets are related to this. Usually, it is totally undertaken by the Indian Government for raising money liquidity for a specific purpose and relieves the “fiscal burden”. The guiding principle of strategic disinvestment in the Indian Government plays no role in “Goods and Service” production or manufacturing in this competitive marketing age. The entity’s potential is correlated to the disinvestment subject and they are basically best asserted by that strategic investor who is based on the technological factors with technology up-gradation and efficient management.

There are some basic approaches which are used for Strategic Disinvestment:

Major Disinvestment

Usually, the government sells the majority of their stakes and along with that, they retain every minor holding in a private company.

Minor Disinvestment

A stake has been given away by the government but retains the majority stake at 51%. This has been done to retain management control.

Compete Privatisation

In this situation, the government used to hand over entire controls of holding stakes to the private player.

Importance and Objectives of Strategic Disinvestment

Importance

• This strategy is usually used for making an investment in social programs such as education and health and for repaying government debts.
• The strategic investor is able to improve such unit’s growth by innovative technology and management skills.
• In every “Non-strategic” sector the presence of government can disrupt the entire marketing dynamics.
• After disruption of marketing dynamics, maintaining the burden of the public sector which is inefficient can fall on the “general public”.
• Investing in the Indian economy can encourage spending and in return, it can help to improve the entire economic condition.
• There are many issues that were present in past strategic disinvestment that have yielded maximum returns.
• Strategic disinvestment can help to generate better environmental investment.
• It also assumes the significance for the prevalence of an increasingly competitive environment and that makes it more difficult in order to operate the profitability of PSU.
• The strategic acquirer or buyer can bring new investment, technology, and management for the growth of the Indian companies with innovative methods of development.
• The presence of governmental factors is necessary for these strategic sectors and that is necessary for non-strategic sectors also in every aspect.

Objectives

• Reducing fiscal burden
• Commercial risks need to be transferred
• To improve discipline and marketing competitiveness
• To raise major funds for developing projects and for financial growth
• To fulfil the budgetary requirements
• To encourage the ownership shares
• To depoliticise the “Non-essential” services
• To raise maximum funds for expansion, modernization and technological up-gradation

Challenges of Strategic Disinvestment

• PSUs’ dividend-paying and profit-making sales can be a reason for the loss in regular income of the Government.
• Strategic partner is able to create a chance for themself in the case of “Asset Striping”.
• National and Strategic Security Concerns are the major issues: Oil PSUs’ strategic disinvestment can be a major threat to National Security because oil is one of the “Strategic Natural Resources”. Also, there is a major chance of foreign ownership and that is not consistent with Indian strategic goals.
• Strategic Disinvestments can affect the social security of the labour forces.
• This strategy can raise the concern of cronyism.
• In terms of using funds from the disinvestment to the bridge, this fiscal deficit is considered a short term and unhealthy practice. It has been considered as “FamilySilver” selling in order to meet the monetary requirements which are basically required for short term investments.
• Public monopolies may become private monopolies in order to complete the privatisation and that can be a major reason for increasing cost for higher profits with multiple types of services.

Conclusion

It needs to be ensured that ‘Strategic Disinvestment’ privatisation leads to greater competition in maximum cases. It needs to be ensured that it needs to proceed with a few strategic sales which are not basically frittered away. It has been also analysed that the salary payouts are being reinvested prudently for infrastructure assets in the long term and that can yield enduring economic returns. It has also been analysed that, in order to allay the concerns of the acronyms this strategic sale needs to be processed at a transparent and fair rate with a minimum price that can be reversible.