Divestment or disinvestment

About Divestment or disinvestment

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What is Divestment or disinvestment

Divestment or disinvestment means selling a stake in a company, subsidiary or other investments. Businesses and governments resort to divestment generally as a way to pare losses from a non-performing asset, exit a particular industry, or raise money. 
 
Governments often sell stakes in public sector companies to raise revenues. In recent times, the central government has used this route to exit loss-making ventures and increase non-tax revenues. 
 
The Indian government started divesting its stake in public-sector companies in the wake of a change of stance in economic policy in the early 1990s — commonly known as 'Liberalisation, Privatisation, Globalisation'. This has helped the Centre pare its fiscal deficits.
 
The Bharatiya Janata Party-led National Democratic Alliance (NDA) government in its first term under Prime Minister Atal Bihari Vajpayee made strategic disinvestment in key PSBs like Bharat Aluminium Company (Balco) and Hindustan Zinc (both to Sterlite Industries), Indian Petrochemicals Corporation Limited (to Reliance Industries) and VSNL (to the Tata group).
 
During the second term of the NDA, the first Narendra Modi-led government tried to exit debt laden Air India, without success. Even so, it exceeded its divestment target of Rs 72,500 crore in 2017-18. This was mainly achieved by the method of strategic cross-divestment — where one PSU buys a stake in another, helping the government raise revenues but keep the company's control with itself all the same. Other routes were listing of insurance companies, mergers of public sector companies, CPSE exchange-traded funds (ETFs) and numerous buybacks.
 
Future divestment strategy
 
The much-anticipated sale of Air India, and its subsidiaries did not attract a single bid in 2018-19. It has still not happened. The government also issued an Expression on Interest for the strategic disinvestment of Pawan Hans, Bharat Petroleum Corporation Limited, and Bharat Earth Movers Limited in the current financial year.
 
 

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