DMPQ: What is Disinvestment? What are its advantages and disadvantages.

Disinvestment is the practice of selling of shares by an organisation ( generally used for government) to the private sector. Disinvestment is de-nationalization of less than 100 per cent ownership transfer from the state to the private sector. The objective of disinvestment is to mobilise the resources, To use the resources for productive purposes like social sector and health infrastructure.

 

Benefits:

  • Help to mobilise the resources
  • Help to bridge fiscal deficit.
  • To get rid of ill managed or sick PSU’s
  • To bring efficiency in the PSU, the operational expertise and management know how.
  • The resources generated can be utilised for productive purpose like social sector and health.
  • Removal of political interference
  • Financing large scale infrastructure via investment.

 

Negatives:

  • Not a sustainable source for bridging fiscal deficit.
  • Industrial restructuring is also required with disinvestment.
  • Setting the target can lead to the distress selling.

Quote AIR India problem,  in the year 2016-17 government could divest only Rs. 27,917 crores against the target of 45,000 crores. Hence resource mobilisation could not take place as per the expectations of the government.

 

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