Strategic Disinvestment

• 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.