What is Disinvestment?
Disinvestment is the process of lowering or giving up ownership or financial links to a particular asset, usually by selling shares or securities. Public or government bodies frequently engage in it when they want to reduce their role in state-owned businesses or liberalize markets. Rather than holding total authority, the government chooses to sell its stake in these businesses. Disinvestment can be done for a variety of reasons, such as funding other initiatives, reducing budget deficits, increasing the effectiveness of public sector undertakings (PSUs), and encouraging investment from the private sector. Disinvestment strategies include selling shares on stock markets, making selective sales to private investors, and initiating public offerings (IPOs).
Features of Disinvestment:
- Capital Generation: Disinvestment aims to generate capital for the government by trading its ownership in the state-owned corporations through a variety of means, including sale of shares, strategic sale, or initial public offering .
- Fiscal Consolidation: Disinvestment helps carry out the objective of fiscal consolidation by reducing the monetary burden of the government and improving financial stability.
- Encouragement of Private Sector: Disinvestment promotes the privatization of competitive character and restricts the role of the government in several sectors.
Difference between Privatization and Disinvestment
Privatization and disinvestment are two separate strategies used by governments to redefine their relationship with state-owned activity. Privatization represents the process during which a government occupies the position of a stakeholder and sells or transfers this ownership to private individuals or firms, while Disinvestment, can be viewed as a situation when a governmental unit of a specific country sells all or part of its stake in state-owned enterprises or activity.