In the light of increasing trend of disinvestment in India, discuss its merits and demerits.

The government of India is setting the targets for disinvestments in the annual budgets for the past few years. Disinvestment is the process of selling government stakes/ shares in an entity. It is different from privatization, which is sale of 100% shares.

When government transfers control over 51% of its stake, it is termed as strategic disinvestment.

Merits:

• Leverage private sector strengths.
• Promote private investment.
• Encourage technology transfer and expertise diffusion. E.g. Hindustan Zinc after disinvestment saw record growth turning it into profit making venture within years.
• Enable government to focus on other critical sectors.
• Follows principle of “government has no business to be in business”.
• Encourage optimal utilization of resources and better decision making devoid of political considerations.

Demerits:

• May amount to abdication of responsibility, when disinvestment occurs in key public good industries or sectors.
• Same argue it is equivalent to selling ‘family gold’ during stress times.
• Profit shall be sole consideration in few sectors like defence, energy.
• Loss of revenue when profit making entities are sold.

Nevertheless, disinvestment is potent tool to mobilise financial resources and redirect towards better purposes such as social infrastructure as seen in recent times.