Glossary term
Disinvestment: Meaning and Definition
Reviewed and approved by Dr. Anamika ShrivastavaPublished Last updated
Disinvestment is the sale of part of the equity of public sector undertakings to the public or to private investors. The government sets annual targets. It is meant to improve discipline and modernise firms, but critics argue that assets are undervalued and that proceeds plug budget gaps.
In more detail
Disinvestment raises money for the budget and, supporters argue, improves discipline by exposing firms to market scrutiny. Critics argue that the proceeds are used to meet current spending instead of building assets, and that sale prices may undervalue the firm. Management control may or may not pass to the buyer.
Example
In 1998-99 the disinvestment target was ₹5,000 crore and ₹5,400 crore was raised.
Key points
- A form of privatisation.
- Managed by DIPAM.
- Navaratna firms were given autonomy instead of being sold.
Common mistake
Equating disinvestment with closing a firm.
Related terms
Where it is explained
This term is explained in Class 11 Indian Economic Development Chapter 3: Liberalisation, Privatisation and Globalisation: An Appraisal.