Macro Moves

Why is the Govt on a PSU Disinvestment mission?

Created on 21 Nov 2019

Wraps up in 3 Min

Read by 3.7k people

Updated on 10 Sep 2022

Govt of India disinvesting PSU's, Air India, BPCL

Looks like the Government of India is on a disinvestment mission. But, why is it so? Is the history repeating itself?

Read and find out

“I don’t think it’s working out well. Probably we should move on.” It looks like the government is repeatedly saying these lines to various PSUs these days. First Air India, then Bharat Petroleum (BPCL) and 27 others lined up. Who would have thought that Government of India would disinvest from PSUs so easily!

It wouldn’t be wrong if we say that Government of India till now was in a toxic relationship in which it was compromising, and compromising, and still compromising but reluctant to get rid of its non-performing public sector holdings. Now that it has taken a step forward, let’s hope that things get better for the companies as well as for the economy.

Reasons Behind Disinvestment

Just think, what would it be like to be able to raise funds ranging between 1.1 and 2.5 Lakhs Crores! That would be a boon in this slowing economy, right? Of course, yes. Here’s how it is: if the government sells its direct holdings in listed non-financial PSUs, it would be able to raise around 1.1 Lakh Crores while it would be able to raise around 2.5 Lakhs Crores if it sells indirect holdings as well.

Even if we don’t think in a materialistic way, this disinvestment will most likely help our government focus on other things which can be handled more efficiently. This would help them to avoid a mental and emotional trauma. Yes, we said it.

Reference from the Past

Something happened in early 1990s which drastically improved our economy. We’re talking about the liberalization, privatization and globalization. That was early 90’s, this is 2019 and we are witnessing ourselves what difference it has made. With the prevailing conditions then, it was almost impossible to imagine the present state of our industrial sectors.

Earlier, it was as simply as ‘whatever government decides for a product is final’. After the privatization was allowed, almost every industrial sector saw a slight shift of power towards consumers which in turn helped the economy. Imagine your life with only BSNL, BPCL, Air India etc. Life would have been not so smooth, right?

Benefits of Disinvestment

There’s nothing wise about continuing with an immensely loss-making venture unless there’s a noble cause attached to it. This is general business sense and it applies to government of India as well. Currently, there are more than 25 PSUs which are putting pressure on government’s pockets. These undertakings have been identified and government is all set for the disinvestment.

What usually happens with government undertakings is that their employees become complacent after a certain amount of time because of ‘Job Security’. Also, since government has a lot to handle, it’s not able to efficiently manage all its holdings simultaneously. Further, if these holdings are loss making, it becomes a burden for the government. If it disinvests at the right time, it saves a lot of effort and tax payers’ money.

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Ayushi Upadhyay

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A Keen Learner. Tiny, brainy, and studious, this quiet one stays in her zone until she pops. And once she does, boy, are her comebacks snappy! There is no financial question that she can't answer through her magical blog-writing. 

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