What is the difference between privatisation and disinvestment?

The government sold Air India to the Tata group for Rs 18,000 crore last year. It got just 15% of the total amount while the rest went to the debtors. The Centre had been trying to offload its entire stake in the airline for years.

And after the nod of the Cabinet Committee on Economic Affairs, the government is now taking LIC to the primary market to divest some of its stakes. The government says that it just wants to go for an IPO and not for a privatisation.

We have also heard our Prime Minister Narendra Modi saying that, “The government has no business being in business”. So the government’s intentions on privatisation and disinvestment are very clear. But are these two terms different? 

Let us start with disinvestment. It means the government or an organisation is liquidating or selling its stake in a company. But it will be less than 50% and the government or the organisation will still be in the saddle, calling the shots. 

Governments often take this step to reduce their fiscal burden and re-allocate resources into other productive areas within a government-funded project or an organisation. It lowers the government's fiscal burden and provides funds for growth-oriented programmes and development.

In 1999, the Indian government set up a separate department of disinvestment, which is today known as the Department of Investment and Public Asset Management or DIPAM. It operates under the Ministry of Finance. 

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The government announces its targets for disinvestment each year during the Union Budget. For the ongoing fiscal year FY22, the government has set a disinvestment target of Rs 1.75 lakh crore. The plan includes privatisation of two public sector banks, public listing of the Life Insurance Corporation of India, Shipping Corporation of India, and many other PSUs.

However, the Centre has so far garnered only a little over Rs 9,300 crore, mostly through minority stake sales in companies such as National Mineral Development Corporation (NMDC), Housing and Urban Development Corporation (HUDCO), and Indian Petrochemicals Corporation (now Reliance Industries), among others. 

This sum doesn’t include the amount raised through the privatisation of Air India, which was sold back to the airlines’ original owner, Tata Group, in October last year. This was the Modi government’s first privatisation deal in seven years. 

Now, let us understand privatisation. It refers to the sale of the government’s majority stake, or the whole enterprise, to private investors. In case of privatisation, the government doesn’t hold the resulting control and ownership.

While the government is confident of mopping up Rs 1 trillion through LIC’s IPO in this fiscal year, the planned privatisation of Bharat Petroleum Corporation Limited (BPCL) is likely to spill over to the next financial year. This would mean that the government will miss its disinvestment target yet again.

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