Disinvestment

Disinvestment refers to the government selling off a part of its stake in public sector enterprises (PSEs). The assessment of the reform period looks closely at how disinvestment has actually worked in practice and why it has attracted criticism.

How disinvestment operates:

Every year the government fixes a target for the disinvestment of PSEs — that is, an amount of money it plans to raise by selling shares or assets of government-owned companies.

The record over the years:

• In 1991–92, the target was to mobilise 2,500 crore rupees through disinvestment. The government actually managed to mobilise 3,040 crore rupees, which was more than the target.
• In 2017–18, the target was about ₹1,00,000 crore, and the government actually mobilised about ₹1,00,057 crore through disinvestment.

On the face of it, meeting or exceeding targets looks like a success. But critics argue that the way disinvestment has been carried out has serious flaws.

The main criticisms:

1. Undervaluation of assets. Critics point out that the assets of PSEs have been undervalued and then sold to the private sector. When valuable public property is sold below its true worth, there is a substantial loss to the government — in effect, an outright sale of public assets at less than they are really worth.

2. Misuse of the proceeds. The money raised from disinvestment has been used to offset the shortage of government revenues — that is, to plug gaps in the budget — rather than being used for the development of the PSEs themselves or for building social infrastructure in the country. This means that instead of strengthening public enterprises or investing in schools, health and other social needs, the sale proceeds are simply spent on covering current revenue shortfalls.

The underlying question: …