Context (TH): States welcome private investment but are reluctant to support strategic disinvestment of Public Sector Undertakings (PSUs).
Recently, Tamil Nadu hosted a large investment summit to attract private investors.
However, the privatisation efforts by the centre for the Salem Steel Plant, a unit of SAIL, faced challenges as the Tamil Nadu government did not facilitate a smooth cooperation.
Potential bidders were not allowed entry to assess the plant’s value, leading the Centre to abandon the plan to privatise the Salem Steel Plant.
Strategic Disinvestment vs Disinvestment
Strategic disinvestment involves selling a substantial portion (up to 50% or a higher percentage) determined by the competent authority of the government’s shares in a CPSE + transfer of management control.
Selling minority shares of Public Enterprises to another entity, be it public or private, is disinvestment. In this way, the government retains ownership of the enterprise.
On the other hand, when the government sells majority shares in an enterprise, that is strategic disinvestment/sale. Here, the government gives up the ownership of the entity as well.
In contrast to simple disinvestment, strategic sale is a kind of privatisation.
In the recent Union Budget (2023-24), the government has established a disinvestment target of ₹51,000 crore.
What are some of the CPSEs put up for strategic sale?
The Cabinet Committee on Economic Affairs has approved strategic disinvestment of various CPSEs.
Some of them include. (Only important ones covered)
Bharat Petroleum Corporation Ltd.
Alloy Steel Steel Plant, Durgapur.
Salem Steel Plant.
Bhadrawati units of SAIL.
Indian Tourism Development Corporation (ITDC).
Hindustan Petroleum Corporation Limited.
Why does the government opt for strategic disinvestment?
Funds: The government employs strategic disinvestment primarily to obtain funds. These funds are channelled into financing various social sectors and developmental programs.
Growth and development: Strategic disinvestment facilitates the infusion of private capital, advanced technology, and improved management practices into CPSE’s.
Economic principle: In India, strategic disinvestment follows the economic principle that the government shouldn’t be in businesses where competitive markets are well-established.