GS Paper III

News Excerpt:

According to government sources, India may fall short of its divestment goal by 300 billion rupees ($3.60 billion) in 2023/24.

Divestment:

• It is a process of selling non-core businesses by an organization or government to focus on its core operations. It refers to the selling off a stake in a company, subsidiary, or other investments.
• This strategy is commonly used by businesses and governments to cut losses from a non-performing asset, withdraw from a particular industry, or raise funds. Governments often divest their stakes in public sector companies to generate revenue.
• The Indian government's comprehensive disinvestment strategy includes -
• listing and minority stake sales,
• strategic sale or privatization in identified sectors,
• monetization of non-core assets, and
• closure of non-viable firms.

Status of divestment targets:

• The government had targeted 510 billion rupees from divestment proceeds for the current fiscal year that ends March 2024. While it may achieve smaller divestments in the current fiscal year, it would still be short of half its overall target.
• In 2023-24, about 300 billion of the 510 billion rupees target was expected through stake sales in IDBI Bank and the privatisation of state-owned NMDC Steel.
• However, delays in vetting interested buyers for IDBI by the Reserve Bank of India have stretched the sale timeline beyond the 2024 Lok Sabha elections.
• The sale of NMDC Steel Chattisgarh will not conclude this year due to state and central elections next year.
• The government has not been able to follow through with plans to sell companies in various sectors since 2019, hampered by issues such as land ownership and union opposition.
• So far this year, the government has received 80 billion rupees through stake sales.
• Privatisation delays will not impact the government's fiscal deficit target of 5.9% of GDP. The government has only managed to sell minority stakes in five of its companies through so-called offers for sales via stock exchanges.

Need for divestment:

• The reasons for divestment may vary, such as restructuring strategies, decreasing investments, political or social pressures, etc.
• The most common reason for divestment is to sell non-core businesses, which can distract management and authorities from their core operations.
• Other reasons may include raising capital, selling underperforming divisions, reacting to regulatory actions, or realising value through a break.
• The proceeds from divestment are usually used to pay off debts, finance working capital, or increase expenditure on the social sector.

Conclusion:

• The National Land Monetisation Corporation (NLMC) is operationalising in India, aiming to monetise non-core assets of central public sector enterprises (CPSEs) for strategic sale and closure. The Department of Public Enterprises has selected international property consultants to provide transaction advisory services for asset monetisation. The National Monetisation Pipeline had an estimated asset monetisation of Rs 6 lakh crore for FY22 -25. The target for FY24 is about Rs 1.8 lakh crore, and government agencies are working out strategies.
• With general elections approaching, the market anticipates another slowdown in the disinvestment drive in FY24. Expediting stake sales in PSEs should remain a key priority for the government, as it will help bridge the fiscal deficit and improve corporate governance and transparency in these firms. The government should focus on education, healthcare, and infrastructure, where much must be done.

Prelims PYQ

Q. Why is the Government of India disinvesting its equity in the Central Public Sector Enterprises (CPSEs)? (UPSC 2011)

1) The Government intends to use the revenue earned from the disinvestment mainly to pay back the external debt.

2) The Government no longer intends to retain the management control of the CPSEs.

Which of the statements given above is/ are correct?

(a) 1 only

(b) 2 only

(c) Both 1 and 2

(d) Neither 1 nor 2

Q. Which of the following statements best describes the term 'Scheme for Sustainable Structuring of Stressed Assets (S4A)', recently seen in the news? (UPSC 2017)

(a) It is a procedure for considering ecological costs of developmental schemes formulated by the Government.

(b) It is a scheme of RBI for reworking the financial structure of big corporate entities facing genuine difficulties.

(c) It is a disinvestment plan of the Government regarding Central Public Sector Undertakings.

(d) It is an important provision in 'The Insolvency and Bankruptcy Code' recently implemented by the Government.