Disinvestment is the process of converting money claims or securities into cash or funds. It occurs through the sale or liquidation of a company’s subsidiary or asset. In most cases, disinvestment refers to the government’s partial or entire sale of a governmental company. An entity may divest an asset in a strategic move to raise revenue for general or specific needs (implementation of welfare programs, for example) or to address a sudden cash-flow shortage.
First, the government monitors those projects and industries that are failing to deliver as required and performs regular checks and balances or takes corrective actions to address the shortcomings. Following that, the government investigates methods to revitalize the business. If despite the numerous attempts and corrective measures in place, the business is unable to be revitalized, it is privatized through disinvestment.
The Indian government established the National Investment Fund [NIF] to invest the revenues/proceeds received from the sale of Central Public Sector Enterprises [CPSE]. Under the NIF, the Fund would be managed to create long-term revenues for the government while not depleting the corpus.
When the new economic policy was introduced in 1991, the government pinpointed causes such as the pricing practices of government agencies, under-utilization of capacity in project planning and development, labour, staff, management issues, lack of self-sufficiency, etc. on numerous loss-making public sector undertakings.
As a result, the government has acknowledged the necessity to eliminate these divisions and refocus on the objective of creating such entities that benefit society. Furthermore, the government chose to exit non-core businesses, particularly those in which the private sector had made considerable investments.
Disinvestment occurs in six ways. They are:
To use any of these techniques, a seven-step process must be followed. The protocol is also available on the website of the Department of Investment and Public Asset Management. Due to the technical and intricate nature of transactions, as well as the demand for transparency and fairness, the process of disinvesting in individual CPSEs has evolved and is now based on inter-ministerial discussions and the engagement of professionals and experts. The steps are as follows:
Political interference, poor management, and labour issues played a vital role in Air India’s decline. In 2007, the airline merged with India Airlines. Air India’s senior executives lacked decision-making authority due to political impingement, resulting in a lack of focused, proactive, and long-term business planning.
With these considerations in mind, the NITI Aayog suggested that Air India should be sold in 2018.
Since then, the following steps have been followed:
As of March 31st 2019, the airline’s total debt was approximately a total sum of INR 60,000 crore. This debt was a major reason behind the disinvestment. As the current status stands, the new owners i.e., Tata will bear responsibility for INR 15,300 crore and pay an additional INR 2,700 crore in cash to the government.
Privatizing Air India may aid it in regaining its former grandeur – which is sorely needed given how heavily in debt the corporation is. Even if deemed prudent, the government is not authorized to redirect tax revenues to a loss-making unit. Therefore, a reduction in loss-making entities shall have a directly proportional relationship with reduced tax collection from the general public. Hence, reduced taxation means more money for healthcare, education, and other public services.
Despite the government’s efforts to salvage Air India, the situation has remained unchanged for years. This implies that the system has serious weaknesses and that diverting taxpayers is not indefinitely rewarded. The implication is that it is preferable to privatize the losing unit to make the most use of taxpayers' money, leading to a favourable situation for everyone.
Contributed by Pooja Rao, Associate