Business News: Why is Modi government selling government companies?

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India's fiscal deficit is 6.45 lakh crore rupees. This means much more expenditure and less earning. 6.45 lakh crore difference in expenditure and earnings.


So to deal with this, the government raises money by privatizing and disinvesting its companies.

The Modi government's cabinet has approved the disinvestment of 5 companies. Earlier, Deputy Chairman of NITI Aayog, Rajiv Kumar told the BBC in August that the Central Government has been given a list of 46 companies for disinvestment or sale and the Cabinet has approved the disinvestment of 24 of them.

The government's target is that this year it will earn 1.05 lakh crore rupees.
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What is Disinvestment and Privatization

Privatization and disinvestment are often used together but privatization is different from this. In this, the government sells 51 percent or more of its company to a company, due to which the management of the company moves away from the government to the buyer.

In disinvestment, the government sells some part of its companies to the private sector or some other government company.

The government is trying to raise money in three ways - disinvestment, privatization and sale of government assets.

Privatization and disinvestment are taking place in an environment when unemployment is present as a major crisis in the country. There is a severe shortage of capital in the country. Domestic companies do not have capital. Most of these are also debtors. The condition of the banks is also relaxed.

The argument in favor of disinvestment is that the way of functioning in government companies is no longer professional and because of that many government companies are running in losses.

Therefore, they should be privatized, which will change the way business is done, and the money that comes from selling the company in private hands can be used to provide better services to the public.

But is this disinvestment right?
While presenting the budget on July 5, Finance Minister Nirmala Sitharaman announced to reduce her investment in Public Sector Undertaking (PSU) by 51%.

In simple words, it means that if there is less than 51 percent shareholding, then the government's ownership ends.

But in the same announcement, it was also said that the government only wants to change the current policy which is currently 51% of the government's direct holding. It wants to change it to direct or indirect government holding.
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Let's take an example Indian Oil Corporation Limited (IOCL). It has 51.5% direct holding of the government. Apart from this, 6.5% shares of Life Insurance Corporation (LIC) are also in it which is completely a government company. It also means indirect holding of the government in IOCL.

So if the government reduces its direct government holdings from IOCL, then the government will have the power to take decisions due to indirect government holding. But then what is its purpose? The objective was that a new investor would come and change these institutions and bring them on the path of development. But there is a possibility of government intervention somewhere.

A large section of the economic and business world believes that the way government companies have been sold in the last three years was not only disinvestment, but shares of one government company were bought by another government company.

This reduces the budget deficit of the government, but neither does it make much difference in the shareholding of the company, nor does it change the working of the company for the better.
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Why are you afraid of disinvestment?

But this process of disinvestment is also slow like the economy. Only 16% of this year's target of disinvestment of Modi government has been met. Out of the target's 1.05 lakh crore, close to Rs 17,365 crore has been raised.

Investor is also looking to sell Air India. It is delayed because earlier the government wanted to keep 24% holding in it but now the government is ready to sell it completely.

The reason for the slow pace of disinvestment is its opposition because it is in danger of losing jobs.

The Indian trade union associated with the RSS has also opposed the sale of government companies to private companies.

Because private company can expel anyone. However, economist Vivek Kaul says that being fired does not mean that employees will come on the road. Staff will have to pay VRS (voluntary retirement scheme), provident fund and they will have to pay gratuity.

Last time, between 1999 and 2004, the NDA government adopted the method of disinvestment to reduce the fiscal deficit. Then a separate ministry was created for this.

This exercise has also been done by the Congress government but currently it is criticizing the steps of the NDA government.