IAS Gyan

Daily News Analysis

Centre targets PSBs’ stake sale by March

19th August, 2020 Economy

Context: The Finance Ministry is working to expedite the sale of stakes in four state-owned banks — IDBI Bank, Bank of Maharashtra, Punjab & Sind Bank and UCO Bank — with the aim of completing the disinvestment process in the current fiscal.


  • The government is looking to divest its stakes in multiple public sector companies at a time when its finances have taken a hit from significant shortfalls in tax revenue amid the economic fallout of the COVID-19 pandemic.
  • The Centre holds majority stakes in all four banks through direct and indirect holdings.
  • The Centre’s Aatmanirbhar Bharat Abhiyan, as a stimulus package in the wake of the pandemic, had promised a new Public Sector Enterprise Policy that would notify specific strategic sectors in which no more than four PSU players would be allowed, with the rest being privatised, merged or brought under holding companies.


  • At the time, some economists had cautioned that the government could struggle to find buyers for its PSU stakes at a time of global recession.
  • In June, Chief Economic Advisor Krishnamurthy Subramanian asserted that banking would be categorised as a strategic sector, meaning that apart from four public sector banks, all others would have to be privatised or merged.


  • Disinvestment means sale or liquidation of assets by the government, usually Central and state public sector enterprises, projects, or other fixed assets.
  • The government undertakes disinvestment to reduce the fiscal burden on the exchequer, or to raise money for meeting specific needs, such as to bridge the revenue shortfall from other regular sources.
  • In some cases, disinvestment may be done to privatise assets. However, not all disinvestment is privatisation.
  • Main objectives of Disinvestment in India:
    • Reducing the fiscal burden on the exchequer
    • Improving public finances
    • Encouraging private ownership
    • Funding growth and development programmes
    • Maintaining and promoting competition in the market

Disinvestment vs. privatisation:

  • The government, whenever it so desires, may sell a whole enterprise, or a majority stake in it, to private investors. In such cases, it is known as privatisation, in which the resulting ownership and control of the organisation does not rest with the government.
  • The government usually avoids doing this. The government mostly retains more than half of the stake in the public sector enterprise so that the control remains in its hands. However, when it does not, then the ownership is transferred to the private sector, which results in privatisation.
  • It is also known as majority disinvestment or complete privatisation wherein 100 per cent control goes to the private sector.