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How disinvestment through sell-off of ONGC, CIL will resuscitate flagging economy: Explained

By Mukul

The Narendra Modi Government is planning to resuscitate flagging economy by raising a big amount through most ambitious disinvestment programme. According to Times of India report, an amount Rs 45,000 crore will be raised by selling shares in blue chip public sector units Coal India Ltd (CIL), ONGC and National Hydroelectric Power Corporation (NHPC).

What is the Divestment and Government plan?

  • Divestment is a process of reduction of assets for financial, ethical, or political objectives.
  • Divestment is just opposite of investment, where stake is being intentionally reduced with some specific purpose.
  • The Cabinet Committee on Economic Affairs, chaired by Prime Minister Narendra Modi on Wednesday approved selling of 10 per cent stake of Coal India which would raise Rs 23,600 crore.
  • Similarly, Rs 19,000 will be collected through 5% sell in ONGC and Rs 3,000 crore will be collected through selling 11.3% stake of NHPC.
  • Report say that several other companies, such as Bhel and Power Finance Corporation , are also on the disinvestment department's radar but nothing has been finalized yet.
  • Speaking on the matter, Finance Minister arun Jaitley said, "The Department of Disinvestment (DoD) has already appointed advisors in some cases and the follow-up actions on those PSUs on some part of equity is to be divested is already progressing as scheduled".
  • Earlier, in 2012 during UPA tenure, the cabinet had approved a 10.82 per cent stake sale in SAIL.
  • As Gujarat Chief Minister Narendra Modi has got credit of turning around of several public sector undertakings, or PSUs.
  • Modi changed the Gujarat State Fertilisers & Chemicals, which was making a loss in 2003 into a profitable organisation which currently is providing a return on equity of 15 per cent.

Why it is imminent?

  • In the backdrop of burgeoning fiscal deficit, it is necessity to give spur to economic growth and tide over revenue shortfall.
  • Money generated through Divestment process will play an important role n financing infrastructure development.
  • According to ET report say that government can even raise Rs 1 lakh crore by divesting stake in the top 10 cash-rich PSUs.
  • The top 10 PSUs in which the government can divest 10 per cent or more stake are: ONGC, Coal India, State Bank of India, NTPC, Indian Oil Corporation, NMDC, Power Grid Corporation, Bharat Heavy Electricals Ltd,GAIL (India) Ltd and Bank of Baroda.

UPA failed to achieve target

  • In Budget , Modi government has estimated to collect Rs 43,425 crore from selling stake in PSUs.
  • It was also planned to collect an amount of Rs 15,000 crore with the sale of residual stake in the erstwhile government companies.
  • Successive Government has poor record on this front which can be understood that except for 1991-92, 1994-95 and 1998-99, the government has never met its annual disinvestment target.
  • UPA Government faltered completely as it never achieved target. In 2013-14, against the target of Rs 40,000 crore, Government could mobilised Rs 15,820 crore only.
  • Similarly in 2012-13, Rs 23,957 crore was raised against Rs 30,000 crore. In 2011-12, only Rs 13,894 crore could be managed of the Rs 40,000 crore target.

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