Brief Context
Context The Union Budget 2026–27 reiterates the government’s preference for growth-led fiscal consolidation, balancing deficit reduction with sustained capital expenditure, and disinvestment. About Economic growth has been prioritised over fiscal deficit reduction to sustain demand and investment. Capital expenditure and infrastructure spending have been protected due to their high growth multiplier effects.
Source Content
Syllabus: GS3/ Economy
Context
- The Union Budget 2026–27 reiterates the government’s preference for growth-led fiscal consolidation, balancing deficit reduction with sustained capital expenditure, and disinvestment.
About
- Economic growth has been prioritised over fiscal deficit reduction to sustain demand and investment.
- Capital expenditure and infrastructure spending have been protected due to their high growth multiplier effects.
- The fiscal deficit is projected at 4.4% of GDP in FY26 and 4.3% in FY27, reflecting gradual consolidation.
What is PSU Disinvestment?
- PSU disinvestment refers to the process by which the government reduces its ownership stake in Central Public Sector Enterprises (CPSEs).
- It can involve partial sale, strategic sale, or increase in public shareholding, while retaining or transferring management control.
- Disinvestment is distinct from privatisation, as ownership and control may still remain with the government.
- Department of Investment and Public Asset Management (DIPAM):
- DIPAM is a Department under the Ministry of Finance.
- It deals with all matters relating to management of Central Government investments in equity including disinvestment of equity in Central Public Sector Enterprises(CPSE’s).
Modes of Disinvestment of CPSEs
- Strategic Disinvestment: It implies the entire or substantial sale of Government shareholding of a CPSE along with transfer of management control.
- Minority Stake Sale: Minority stake sale in certain CPSEs are carried out without transfer of management control through various SEBI-approved methods like Initial Public Offer (IPO), Offer for Sale (OFS) and Buyback of shares etc.
Objectives of PSU Disinvestment
- To mobilise non-tax revenue and reduce dependence on borrowing.
- To improve efficiency, productivity, and corporate governance in CPSEs.
- To enable the government to reallocate resources towards social and infrastructure sectors.
- To support fiscal consolidation without compressing productive expenditure.
Challenges in PSU Disinvestment
- Market-related constraints: Volatility in equity and debt markets affects valuation discovery and optimal timing of disinvestment.
- Labour concerns: Resistance from employee unions stems from fears of job losses, wage restructuring, and dilution of social security.
- Procedural delays: Lengthy approval processes, inter-ministerial coordination issues, and litigation delay execution.
- Sector-specific investor limitations: Certain CPSEs operate in sectors with low profitability or high regulation, limiting investor appetite.
- Strategic disinvestment becomes difficult where long-term commercial viability is uncertain.
- Operational inefficiencies of CPSEs: Persistent underperformance, high legacy costs, and outdated technology reduce asset attractiveness.
Way Ahead
- Transparency in timelines and methods will enhance investor confidence.
- Cleaning up balance sheets, resolving legacy liabilities, and rationalising manpower before disinvestment will improve asset attractiveness.
Source: IE