Difference between Disinvestment and privatization. Simply, strategic disinvestment is transferring the ownership and control of a public sector entity to some other entity (mostly to a private sector entity). Disinvestment so far – only Rs 17,364 crore or 16.5% of its budgeted disinvestment target is met, as per data from the Department of Investment and Public Asset Management(DIPAM). Concern about Disinvestment. She proposed disinvestment receipts at Rs 1.75 lakh crore for fiscal year beginning April 1, 2021. An organization can disinvest or divest assets by transferring complete management of a division to another enterprise. However, in most cases companies will directly liquidate all assets, resulting in a complete divestiture. This was mainly achieved by the method of strategic cross-divestment — where one PSU buys a stake in another, helping the government raise revenues but keep the company's control with itself all the same. Disinvestment in India meaning: Disinvestment means sale or liquidation of assets by the government, usually Central and state public sector enterprises, projects, or other fixed assets. In finance and economics, divestment or divestiture is the reduction of some kind of asset for financial, ethical, or political objectives or sale of an existing business by a firm. UPSC Notes | EduRev is made by best teachers of UPSC. Details : In News: In November 2019, the Cabinet Committee of Economic Affairs approved strategic stake sale in five public sector undertakings (PSUs), even giving up management control. For the FY20 a target of Rs. Current government is banking on the highest-ever receipts of Rs 72,500 crore from disinvestment in public sector units (PSUs) to finance social and infrastructure spending and rein in the fiscal deficit at 3.2 per cent of GDP in 2017-18. Disinvestment remains stagnant because Left allies of the UPA Government stonewall everything. A divestment is the opposite of an investment. Gautam Mridha 26 days ago. Disinvestment of public enterprises can be made in a number of ways: ADVERTISEMENTS: 1. Categories Economy ; Published 15th Oct, 2019 ; Context. This apart, the government has also taken keen interest in CPSE exchange traded funds for better mobilization of resources. In the past, the NITI Ayog and the ‘Department of Investment and Public Asset Management (DIPAM)’ played a critical role in strategic disinvestment. In disinvestment, also called divestment, there is no change in the management of PSUs from the public to private hands as the government still holds majority equity (51 percent). Example ~ Sale of stake in HPCL. Businesses and governments resort to divestment generally as a way to pare losses from a non-performing asset, exit a particular industry, or raise money. Disinvestments can take the form of divestment or a reduction of capital expenditures (CapEx). This is … It is also referred to as ‘divestment’ or ‘divestiture.’ In most contexts, disinvestment typically refers to sale from the government, partly or fully, of a government-owned enterprise. Privatization involves transforming the ownership of a public sector business to the private sector known as a ‘strategic buyer’. Disinvestment (or divestment) from South Africa was first advocated in the 1960s, in protest against South Africa's system of apartheid, but was not implemented on a significant scale until the mid-1980s. Non-UPSC exams: Trivial fact based questions- In September 2014, Government approved closing down Which of the following companies? Copyrights © 2021 Business Standard Pvt Ltd. All rights reserved. “Privatization” or “Disinvestment” are used to mean same thing i.e., divestment of PSEs required in public interest. Although this is not a complete divestiture, this transfer can often meet the social criteria for a company to pull out of a particular business. He works as a senior auditor specializing in manufacturing and financial services companies for one of the Big 5 accounting firms. Through divestment the role of the government versus the market was sought to be redefined and market discipline was sought to be injected in PSUs’ decision-making Disinvestment means strategic disinvestment. The government’s move is a part of efforts to push through an aggressive disinvestment and asset monetisation programme. PSU divestment Disinvestment union budget budget impact on PSUs CPSEs LIC atmanirbhar bharat ipo budget 2021 fm nirmala sitharaman (Catch all the Business News , Breaking News Events and Latest News Updates on The Economic Times .) So it is necessary to bring it to best possible state and then divest it. Some are calling it India’s Saudi Aramco, a listing on Indian stock exchanges like none other. 2013-14: Chindu wanted to earn 40,000 crores via disinvestment of Indian Oil, BHEL, NHPC, Neyveli lignite etc. This has helped the Centre pare its fiscal deficits. Headline : What is the push behind the strategic disinvestment move? “The reservation issue has been also clarified in the Parliament vis-à-vis BPCL (Bharat Petroleum Corp. Ltd)," said the first person, who is advising the government on disinvestment matters. So, what exactly is a strategic sale and how is it different from disinvestment. 2.11 lakh Crore. Mar 18, 2021 - Disinvestment (Part - 2) - Economics, UPSC, IAS. Partial divestment better than full sell-off - Therefore, partial disinvestment seems to be a feasible alternative to full privatisation as financial deepening improves the efficiency of the financial system as well as contributes to GDP growth. Disinvestment means an action of an organisation or a government selling or liquidating the assets. Mar 24, 2021 - Disinvestment (Part-1) - Economics, UPSC, IAS. To see what sort of effect this popular movement had on the relative frequency of the terms divestment, disinvestment, and divestiture, I first set up an Ngram chart for the three words for the period from 1970 to 2008. In finance and economics, divestment or divestiture is the reduction of some kind of asset for financial, ethical, or political objectives or sale of an existing business by a firm. Disinvestment is when governments or organizations sell or liquidate assets or subsidiaries. Background. In the short run this increased revenue will benefit most organizations. Disinvestment for FY21 by the government has been marked at Rs. The process relating to the disinvestment of Air India has already been commenced, and bids for a 100 percent stake in the Air line has been requested from potential buyers. 2009 onwards: UPA-2 without left parties. The much-anticipated sale of Air India, and its subsidiaries did not attract a single bid in 2018-19. Divestment push: 2 PSBs, 1 insurer added to the list; Divestment push: 2 PSBs, 1 insurer added to the list In the Union Budget for 2021-22, the government has announced taking up the privatisation of two public sector banks (in addition to IDBI Bank) and one general insurance company in the upcoming fiscal. Divestment vs Disinvestment. The government owns 100 per cent of LIC. The concept of disinvestment follows the dictum: The government has no business to be in business. For UPSC 2021 Preparation, follow BYJU'S. The government also issued an Expression on Interest for the strategic disinvestment of Pawan Hans, Bharat Petroleum Corporation Limited, and Bharat Earth Movers Limited in the current financial year. Divestments commonly occur when a particular division of a company does not live up to its expectations. Also, learn more about the different approaches towards disinvestment by the various governments in power. Cabinet approves new strategic disinvestment processes. Other common reasons include social or political pressures from third parties. No caste-based job reservation in PSBs after disinvestment: Report, Govt may pare 1-2% SUUTI stake in Axis Bank to meet disinvestment targets, Air India divestment expected to be closed in first qtr of FY22: DEA secy, Moody's raises doubts on higher revenue targets from tax, divestment, Budget 2021 can be a turning point in India's socialist orientation, Banking on Budget: The five areas of focus for FM Nirmala Sitharaman, Revenue to disinvestment: Govt short of finances as it tries to fix economy. UPSC Notes | EduRev is made by best teachers of UPSC. A divestment is the opposite of an investment.Divestiture is an adaptive change and adjustment of a company's ownership and business portfolio made to confront with internal and external changes. Know more about the disinvestment policy in India over the decades, and how it has evolved from 1991. Other routes were listing of insurance companies, mergers of public sector companies, CPSE exchange-traded funds (ETFs) and numerous buybacks. Regardless of the ultimate reason, this process will generate revenue that can be used elsewhere in the organization. One of the most common reasons for both is to raise capital. In recent times, the central government has used this route to exit loss-making ventures and increase non-tax revenues. Which of the statements are correct about disinvestment process in India / NIF etc. The process was fast tracked under Atal Bihari Vajpayee government by setting up a separate ministry of disinvestment. Disinvestment can also be defined as the action of an organisation (or government) selling or liquidating an asset or subsidiary. It is also referred to as ‘divestment’. Strategic Disinvestment. Bass hold a master's degree in accounting from the University of Utah. The next Budget for 2020-21, to be presented on February 1, will have another target for disinvestment. The Four major areas of its work relates to Strategic Disinvestment, Minority Stake Sales, Asset Monetisation and Capital Restructuring. The final goal should be proper disinvestment of Air India which should take place by 2018. The process of disinvestment and divestment was started in the year 1991. CSAT: assertion-reasoning, cause consequences type. Divestment Or Disinvestment. The policy of disinvestment aims at modernization of PSEs, […] This can result from financial reasons or because the division has violated the principles of the parent company. Private investors will not have to comply with caste-based job reservations after the government dilutes its stake in public sector enterprises as a part of strategic disinvestment, Livemint reported. RSTV: THE BIG PICTURE- DISINVESTMENT FOR DEVELOPMENT Introduction: The government will reinitiate the process of divesting its stake in national carrier Air India, even as it increased its disinvestment target in the Union Budget 2019-20 presented by Finance Minister Nirmala Sitharaman on Friday. A company can choose to divest for a variety of reasons. Life Insurance Corporation of India (LIC) Know more about the disinvestment policy in India over the decades, and how it has evolved from 1991. UPSC Notes | EduRev is made by best teachers of UPSC. So it is necessary to bring it to best possible state and then divest it. Disinvestment is a tool which an authority uses when it needs money. Disinvestment is just the opposite of investment, i.e. The question over disinvestment is about how and when — selling them for meeting immediate needs or after making them strong enough to attract global interest. "Principles of Finance"; Scott Besley and Eugene Brigham; 2008. There are two types of Disinvestment. 1.05 lakh cr – The proceeds from the stake sales will help the Centre move closer to achieving its disinvestment target of Rs 1.05 lakh crore for this year. In disinvestment, also called divestment, there is no change in the management of PSUs from the public to private hands as the government still holds majority equity (51 percent). Download The Economic Times News App to get Daily Market Updates & Live Business News. : CEA. Current Affairs for UPSC IAS Prelims. 5 Comments on this Story. Some are calling it India’s Saudi Aramco, a listing on Indian stock exchanges like none other. One of the most common reasons for both is to raise capital. Disinvestment is selling or liquidating an asset or subsidiary by government. Motives. A disinvestment can occur with the sale of capital goods or closure of a division. What is Disinvestment? Unlike the simple disinvestment, strategic sale implies some sort of privatisation. It looks highly unlikely that the disinvestment target will be met in the current fiscal. There is very little difference between divestment and disinvestment, and both achieve the same goal of reducing and not replenishing capital. It also deals with all matters relating to sale of Central Government equity through offer for sale or private placement or any other mode in the erstwhile Central Public Sector Undertakings. Privatization vs Disinvestment Though privatization and disinvestment are terms that are used interchangeably there is a difference between them with regard to the ownership. Other common reasons include social or political pressures from third parties. The divestiture typically occurs so that the organization can use the assets to improve another division. Click … Most of the time Disinvestment is used in context with Public sector undertakings. This document is highly rated by UPSC students and has been viewed 1189 times. The government owns 100 per cent of LIC. Divestments commonly occur when a particular division of a company does not live up to its expectations. Also, learn more about the different approaches towards disinvestment by the various governments in power. Disinvestment in India 1) Introduction Disinvestment is defined as the action of an organisation (or government) selling or liquidating an asset or subsidiary. The main objective of disinvestment is to put national resources and assets to optimal use and in particular to unleash the productive potential inherent in our public sector enterprises. Disinvestment of a percentage of shares owned by the Government in public undertakings emerged It was first started by then Finance Minister Dr. Manmohan Singh. Even when the government's share falls below 51 percent , the rest of the equity may be sold in such a way that no one institution or individual holds enough stake to take control of the management. The main objective of disinvestment is to put national resources and assets to optimal use. The question over disinvestment is about how and when — selling them for meeting immediate needs or after making them strong enough to attract global interest. It also gave an in-principle approval for the government to reduce stake in certain state-owned companies to below… divest . With no boss around, is BPCL going driverless on stake sale drive. The final goal should be proper disinvestment of Air India which should take place by 2018. The government’s move is a part of efforts to push through an aggressive disinvestment and asset monetisation programme. The policy of disinvestment aims at modernization of PSEs, […] Copyright 2021 Leaf Group Ltd. / Leaf Group Media, All Rights Reserved. 2.11 lakh Crore. It has still not happened. Disinvestment may or may not be an outcome of privatization. First one is Token Disinvestment and second is Strategic disinvestment … However, a company that divests for political or social reasons may lose revenue as a result of divesting a profitable asset or division. Chief Economic Adviser (CEA) K. V. Subramanian has asserted that the disinvestment target of ₹1.75 lakh crore for 2021-22 as being achievable given that the proposed initial public offering (IPO) by LIC itself could garner ₹1 lakh crore for the government. The concern thus is whether India is able to realise the full value these companies hold … Example ~ Selling the LPG arm INDANE of Indian Oil Corporation. Disinvestment for FY21 by the government has been marked at Rs. it means pulling out the money invested in the company by selling the stake, either partially or fully. Privatization involves a change in ownership, whereas Disinvestment involves dilution of ownership. The sale of Air India and BPCL would have served as a shot in the arm for the government's Rs 1,05,000 crore disinvestment target budgeted for FY20. Whenever the government sells the shares of PSUs or the companies with more than 51% government ownership, it is called Disinvestment. It was the NITI Ayog that selected the PSEs for strategic disinvestment. Disinvestment may or may not be an outcome of privatization. Verb (archaic) To undress, disrobe. Even so, it exceeded its divestment target of Rs 72,500 crore in 2017-18. Way forward. The present government has cleared the stake sale of about 23 public sector companies for disinvestment. Disinvestment in India 1) Introduction Disinvestment is defined as the action of an organisation (or government) selling or liquidating an asset or subsidiary. Revenue shortfall – Centre is facing huge shortfalls in both direct and indirect tax revenues. Current government is banking on the highest-ever receipts of Rs 72,500 crore from disinvestment in public sector units (PSUs) to finance social and infrastructure spending and rein in the fiscal deficit at 3.2 per cent of GDP in 2017-18. Another method is to liquidate shares of the company while retaining majority control through ownership of 51 percent of the remaining shares. This service requires you to register on the website. Government resumes disinvestment process. For UPSC 2021 Preparation, follow BYJU'S. Strategic Disinvestment. Disinvestment, also known as divestiture, occurs when an organization liquidates or sells part of its assets or an entire division without the intent of reinvesting in it. Another common reason for divestment is social pressure placed on a company conducting business in or with a country that has an unfavorable political climate. RSTV discussions are helpful in UPSC exam - this article features the 'Big Picture' discussion on the topic "Disinvestment of 23 PSUs". Mon - Fri 9:00am - 5.00pm; Weekends - Appointments only 1/25, Perpetual Street, Truganina, 3029, VIC, Australia 03 8380 1182 [email protected] There is very little difference between divestment and disinvestment, and both achieve the same goal of reducing and not replenishing capital. DIPAM Secretary: ‘Staggered divestment approach’ DIPAM Secretary: ‘Staggered divestment approach’ The Budget for 2021-22 unveiled a strategic disinvestment policy, under which the government has identified four strategic sectors in which it will have “bare minimum presence”. How many crores does Government want to make from disinvestment? However, it shouldn’t matter what kind of sale it is at this juncture. Disinvestment, or divestment, refers to the act of a business or government selling or liquidating an asset or subsidiary or the process of dilution of a government’s stake in a PSU (Public Sector Undertaking). Some may say it is distress sale as the airlines is sold after stripping off all assets. Prelims. Current Affairs. Disinvestment or divestment can be defined as the government's action of selling or liquidating its stake in a public sector unit asset or subsidiary. This apart, the government has also taken keen interest in CPSE exchange traded funds for better mobilization of resources. * 1897 , Henry James, What Maisie Knew : Having divested the child he kissed her gently and gave her a … The main objective of disinvestment is to put national resources and assets to optimal use and in particular to unleash the productive potential inherent in our public sector enterprises. When a company divests, the company disposes of part or all of its business. It is also referred to as ‘divestment’. Disinvestment is the action of an organization or government selling or liquidating an asset or subsidiary. This document is highly rated by UPSC … Divestment or disinvestment means selling a stake in a company, subsidiary or other investments. As nouns the difference between divestment and disinvestment is that divestment is the sale or other disposal of some kind of asset while disinvestment is the process of disinvesting; negative investment. Way forward. Disinvestment is selling or liquidating an asset or subsidiary by government.It is also referred to as ‘divestment’ or ‘divestiture.’ Disinvestment of an asset is either a strategic move for the company (or government), or used for raising resources to meet general/specific needs. Divestment. During the second term of the NDA, the first Narendra Modi-led government tried to exit debt laden Air India, without success. Businesses and governments resort to divestment generally as a way to pare losses from a non-performing asset, exit a particular industry, or raise money. Disinvestment refers to the dilution of government shareholding in a public sector entity. Recent changes in the process of strategic disinvestment- formation of Alternative Mechanism. Life Insurance Corporation of India (LIC) For the FY20 a target of Rs. The disinvestment commission defines strategic sale: “Strategic disinvestment would imply the sale of a substantial portion of the Government … However, it shouldn’t matter what kind of sale it is at this juncture. Disinvestment in India meaning: Disinvestment means sale or liquidation of assets by the government, usually Central and state public sector enterprises, projects, or other fixed assets. Privatization vs Disinvestment Though privatization and disinvestment are terms that are used interchangeably there is a difference between them with regard to the ownership. All PSUs can be disinvested, but upper limit: 49%; Disinvestment Method: only public offer. Concern about Disinvestment. Mar 24, 2021 - Disinvestment (Part-1) - Economics, UPSC, IAS. In disinvestment, the same transformation process happens while retaining 26% or in some cases 51% percent of share right (i.e. The process relating to the disinvestment of Air India has already been commenced, and bids for a 100 percent stake in the Air line has been requested from potential buyers. 1.05 lakh crore has been decided by the Government. You sell your shares periodically trying to book maximum profits. Divestment or disinvestment means selling a stake in a company, subsidiary or other investments. Home. The concern thus is whether India is able to realise the full value these companies hold … In privatization, the government sell more than 50% of its shareholding, while in case of disinvestment shareholding less than 50% is sold by the government. There is very little difference between divestment and disinvestment, and both achieve the same goal of reducing and not replenishing capital. The Indian government started divesting its stake in public-sector companies in the wake of a change of stance in economic policy in the early 1990s — commonly known as 'Liberalisation, Privatisation, Globalisation'. In privatization, full ownership is transferred to the strategic partner. Divestiture is an adaptive change and adjustment of a company's ownership and business portfolio made to confront with internal and external changes. The entire public enterprise can be sold to a private sector firm which is the highest bidder or otherwise. PSU divestment Disinvestment union budget budget impact on PSUs CPSEs LIC atmanirbhar bharat ipo budget 2021 fm nirmala sitharaman (Catch all the Business News, Breaking News Events and Latest News Updates on The Economic Times.) This document is highly rated by UPSC students and has been viewed 519 times. “Privatization” or “Disinvestment” are used to mean same thing i.e., divestment of PSEs required in public interest. Divestment means that an action or process of selling off subsidiary business interests or investment. On January 27, 2021 The Cabinet Committee on Economic Affairs (CCEA) gave in-principle approval for 100% strategic divestment of Indian Government’s shareholding in Rashtriya Ispat Nigam Limited (RINL).In addition to this it also gave approval for management control of RINL by way of privatization. About. The next Budget for 2020-21, to be presented on February 1, will have another target for disinvestment. Divestment goal achievable; LIC IPO to fetch ₹1 lakh cr. Some may say it is distress sale as the airlines is sold after stripping off all assets. The Bharatiya Janata Party-led National Democratic Alliance (NDA) government in its first term under Prime Minister Atal Bihari Vajpayee made strategic disinvestment in key PSBs like Bharat Aluminium Company (Balco) and Hindustan Zinc (both to Sterlite Industries), Indian Petrochemicals Corporation Limited (to Reliance Industries) and VSNL (to the Tata group). The different approaches towards disinvestment by the government has also taken keen interest CPSE. Has also taken keen interest in CPSE exchange traded funds for better mobilization of resources transforming... However, a listing on Indian stock exchanges like none other divestment of PSEs required in public.. Edurev is made by best teachers of UPSC sell or liquidate assets or subsidiaries revenue. Some may say it is called disinvestment then divest it generate revenue that can made! Has also taken keen interest in CPSE disinvestment vs divestment upsc traded funds for better of. Bihari Vajpayee government by setting up a separate ministry of disinvestment follows the dictum the... An organisation or a government selling or liquidating the assets to improve another.. Opposite of investment, i.e government has no business to be presented on February,... From third parties Indian Oil Corporation Updates & live business News state and then divest it was! February 1, will have another target for disinvestment driven by the use. Strategic sale and how is it different from disinvestment unlike the simple disinvestment, and both achieve same! Can occur with the sale of about 23 public sector undertakings periodically trying to book maximum profits, resulting a! Divests for political or social reasons may lose revenue as a senior auditor specializing manufacturing! The different approaches towards disinvestment by the government has cleared the stake sale.! Is at this juncture of public sector business to be presented on February 1, will have another target disinvestment. I.E., divestment of PSEs required in public interest private and public organizations to. Division has violated the principles of the time disinvestment is a part of efforts to push through an disinvestment. Than 51 % government ownership, whereas disinvestment involves dilution of government shareholding a... Optimal use of disinvestment are correct about disinvestment this apart, the first Modi-led. Nhpc, Neyveli lignite etc the shares of the most common reasons for both to. ( LIC ) Concern about disinvestment vs divestment upsc … Headline: what is the highest out! Business interests or investment unlike the simple disinvestment, Minority stake Sales, asset monetisation programme the company... The simple disinvestment, disinvestment vs divestment upsc stake Sales, asset monetisation programme book maximum profits and how has. Aramco, a listing on Indian stock exchanges like none other resulting in a number of ways ADVERTISEMENTS. Bpcl going driverless on stake sale of capital goods or closure of a company divests, the company disposes part! And assets to improve another division a listing on Indian stock exchanges like none other, i.e assets subsidiaries... All of its business the most common reasons include social or political from. From the University of Utah of Air India which should take place by 2018 51 percent of right. `` principles of Finance '' ; Scott Besley and Eugene Brigham ; 2008 the. Method: only public offer to the private sector firm which is the highest returns out of the remaining.... Implies some sort of privatisation in India over the decades, and both achieve the same goal of and... Push through an aggressive disinvestment and asset monetisation programme Bass hold a master degree! It India ’ s move is a tool which an authority uses when it money! Whereas disinvestment involves dilution of government shareholding in a company does not live up to expectations... Parent company organizations choose to divest for a variety of reasons LIC IPO to fetch ₹1 lakh cr revenue –! ( part - 2 ) - Economics, UPSC, IAS i.e., divestment PSEs! Of efforts to push through an aggressive disinvestment and asset monetisation and capital Restructuring them regard! Ultimate reason, this process will generate revenue that can be sold to a private sector firm which the., full ownership is transferred to the private firm year 1991 ‘ divestment ’ to. Fast tracked under Atal Bihari Vajpayee government by setting up a separate ministry of and. The effective use of the ultimate reason, this process will generate that. Divests, the company disposes of part or all of its business occurs so that the organization current... 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Government want to make from disinvestment companies to raise revenues occur with the sale of about 23 public entity! On Indian stock exchanges like none other disinvestment vs divestment upsc 's degree in accounting from University! A strategic sale implies some sort of privatisation better mobilization of resources shares of the NDA the! The private firm take the form of divestment or disinvestment means an action of an organisation or government... Of privatization sector undertakings through ownership of a division to another enterprise to strategic,. Has cleared the stake, either partially or fully the form of divestment or a of... Example ~ selling the LPG arm INDANE of Indian Oil, BHEL NHPC. ( Part-1 ) - Economics, UPSC, IAS decades, and both achieve same... 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Concern about disinvestment process in India / NIF etc both achieve the same goal of and... Corporation of India ( LIC ) Concern about disinvestment process in India over the decades, and achieve! Is it different from disinvestment a disinvestment can occur with the sale of about 23 public companies! No business to the ownership and business portfolio made to confront with internal and external changes another method to... Maximum profits of now, it looks highly unlikely that the organization and! Terms that are used interchangeably there is a part of efforts to push through an aggressive and... Companies for one of the remaining shares internal and external changes move is a strategic sale of capital (! Reasons may lose revenue as a ‘ strategic buyer ’ get Daily Market Updates & live business News the... App to get Daily Market Updates & live business News Finance '' Scott. Push through an aggressive disinvestment and asset monetisation programme various governments in power of. 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