Disinvestment is a very broad concept of economics that imply it can have various meanings. It is an action taken by government to liquidate their assets. Disinvestment also refers to a situation in which government will reduce its capital expenditure that will lead to increase the productivity of resources within an organization, but the main purpose is to maximize the return on investment. Political and legal factors are also considered as factor related to disinvestment.
Generally disinvestment and privatization is considered to be the same but there is a slight difference between the two, disinvestment is when the government sells a part of their equity by less than 50 percent share and privatization is government will sell of their share more than 50 percent so that the decision making power will shift in the hand of private enterprise, is called privatization.
Disinvestment can be helpful in long term growth of an economy as it allows the government to reduce their financial debts, while helps in the development of strong capital market by allowing a larger PSU share in open market. Some of the objectives of disinvestment are reducing the fiscal burden on the exchequer, improving public finances, funding growth and development programme, encouraging private ownership and maintaining and promoting competition in the market.
Recently government of India announced the disinvestment of six public sector units in Neelachal Ispat Nigam Ltd. Neelachal Ispat Nigam Ltd. is a joint venture of four central PSU’s and 2 state PSU’s, namely MMTC, National Mineral Development Corporation (NMDC), Bharat Heavy Electricals Ltd (BHEL), MECON, IPICOL and Odisha Mining Corporation (OMC).
One more disinvestment news coming from Air India, as Air India is planning to disinvest their assets by evaluating the loss of 8556 crore f financial year 2018-19. Government would approve the disinvestment draft by signing the expression of interest and share purchase agreement for disinvestment of Air India. In the following year many PSU’s are going to disinvest due to the large occurrences of loss in the previous year and coming years too.
Indian railway also decides to privatize their passenger services as it faces a loss of 40,000 crore, while IRCTC has decided to run two private trains between Delhi-Lucknow and Mumbai-Ahmedabad routes and near about 50 trains between Delhi-Kolkata, Delhi-Mumbai, Chennai-Mumbai and Delhi-Patna.
Disinvestment is considered as an engine of growth if the leading parameters are work with the same flow of work, so sometimes it can be used to run the economy on the growing path.