Disinvestment is defined as the action of an organization (or the government) usually central and state selling or liquidating an asset or subsidiary.

It is known by other names such as ‘divestment’ or ‘divestiture.’


In the wake of the economic policy known as ‘liberalization, privatization, globalization ‘ in the 1990s, the Indian government then began to divest its stake in public-sector companies, which further helped the center trim its fiscal deficits.

Governments would often sell stakes in public sector companies in order to raise revenue. In recent times, the central government would use this route to make up for the loss-making ventures and then increase the non-tax revenues.

The National Democratic Alliance government has made some strategic disinvestment in key PSUs like Bharat aluminum company and Hindustan zinc, Indian petrochemicals corporation limited, and VSNL.

Under Narendra Modi, the NDA tried retiring government debt as mostly 41-45% of the centre’s revenue receipts would go towards the repayment of public debt or interest so the government decided to exceed its divestment target of 2017-18, after failure to retire the debt of Air India.

This could have been possible by the method of strategic cross-divestment which can be defined as one PSU buying a stake in another, helping the government to raise revenues but keeping the company’s control over itself.

Objectives of Disinvestment

   The following are the main objectives of disinvestment

    • The government will no longer burden itself. 
    • The public finances will also improve.
    • They are opening up markets for private firms, which will then lead to the formation of better capital markets.
    • Raising funds for the government to facilitate the long-term government objectives of growth and development in the country.
    • Channelization of resources for more productive avenues and large-scale infrastructure development projects by reducing capital expenditures on existing non-performing assets or loss-making firms.
    • The return on investment (ROI) of underperforming firms will be improved.
    • The government will require funds for social programs like health and education and for investing in the economy so that it encourages spending.

Means of Disinvestment

Disinvestment can be done in the following ways

  • Initial public offering
  • Follow up on the public offer
  • Exchange-traded funds
  • Cross-holding
  • Offer for sale
  • Institutional placement

Types of Disinvestment

  • Minority disinvestment is, after this disinvestment, the government will retain a majority stake in the company, which is greater than 51%, hence the control lies in the hands of the management example is auctioning to institutions where Andrew yule & co. ltd., CMC Ltd. etc.
  • Majority disinvestment is the one in which the government, post disinvestment, will retain a minority stake in the company. An example is krl to bpcl.
  • Complete privatization is a form of majority disinvestment where there is 100% control of the company that will be passed on to a buyer. Example 18 hotel properties of itdc and 3 hotel properties of hci.

Reasons for Disinvestment

  • Disinvestment is done in order to meet the fiscal deficit.
  • There is expansion or diversification of the firm.
  • The government can repay its debts.
  • There is the implementation of a government plan.
  • PSUs will give a negative rate of return on capital.

The new industrial policy of 1991, introduced along with other economic reforms, discussed the disinvestment and privatization of PSUs. The government’s disinvestment policy stated that

  • The divestment of the government’s stake is done in order to raise money to meet its fiscal needs.
  • They wanted to protect the interests of workers.
  • The government wanted to restructure itself through the help of PSUs.
  • They had to deal with the profit-making PSUs that could not be privatized.
  • They had to do something about the closed-down PSUs which cannot be revived or sold.

The listing of all the unlisted PSUs would then sell a minimum of 25 percent of equity to the public.


  • Government shareholding in PSUs is a public asset that should not be liquidated to meet immediate needs.
  • PSUs contributing to public finances through dividends and disinvestment can reduce this important source of finance.
  • There is no clear policy or framework. As the PSUs then in the absence of PSUs, private enterprises might form cartels.
  • There are multiple control authorities. When the government goes for privatization, there is a possibility of a PSU being sold off at a lower value to a private entity which can be against the larger public interest.
  • It was unable to attract foreign buyers.

Recent Divestments

The sale of Air India and its subsidiaries was not able to attract a single bid in 2018-19. 

Dipam and the civil aviation ministry will again go for it in 2019-20.

Dipam and the ministry of tourism will be making a deal that will be placed in front of the cabinet committee on economic affairs in 2019-20.

By December 2019 the government is also looking to find a potential operator for its hospitality property, Hotel Ashok.

Some of the IPOs that will face disinvestment are Telecommunications Consultants India, Railtel corporation India, national seed corporation Kudremukh Iron Ore Company, Garden Reach Shipbuilders, and IRCTC.

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