The government has renewed its focus on strategic disinvestment in recent times. In this light, examine the rationale behind it and discuss the concerns raised against it.

Strategic disinvestment means that the government is divesting its majority stake from a public sector enterprise (PSE) and transferring its management & ownership to a private entity.

Rationale behind strategic disinvestment:

• Enhances efficiency of the PSUs.
• Pull out the public finance.
• Bring government out of non-essential sector.
• Finance for infrastructure development.
• Helps in increasing profitability and stakes of well performing PSUs.
• Increases competition to promote innovation.

Concerns associated with strategic disinvestment:

• Government unable to divest the loss making PSUs.
• Funds used for financing budget deficit.
• Undervaluation of PSUs, leading to loss to exchequer.
• Problem of protest from employees.
• Divestment being done of profitable PSUs too, to complete targets.
• Inadequate policy framework leading to sporadic decision making and miscalculations about government assets.

Public sector in India has deepened to a great extent. Hence, disinvestment process needs to be thought of in sync with priorities & focus upon increasing infrastructure rather than wasteful expenditure.

Topics: GS-III: Indian Economy Issues Relating to Planning • GS-III: Economic Growth Development