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Any government requires funds to invest in large scale infrastructure. It needs to invest in the economy to encourage spending. It also has to run social programmes to provide health and education services. Not to mention, it requires financing for retiring government debt.
And how do governments manage such humongous expenses?
By earning revenue through tax collection. This includes direct as well as indirect taxes. But is this enough to meet expenses? Not even close. When a government's total expenditures exceed the revenue, it is called a fiscal deficit. India has been mired in a fiscal deficit situation since independence.
How can the government reduce fiscal deficit? It could increase taxes. It could reduce its expenses. But both of these options could have an adverse impact on the country's GDP growth.
However, there is one more option that the government can use: Disinvestment.
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Disinvestment typically refers to sale from the government, partly or fully, of a government-owned enterprise. Disinvestment is another route through which the government can raise funds for meeting needs.
In every Budget, the government sets a target for disinvestment. In Budget 2017-18, the government has boldly set its highest target till date - Rs 72,500 Crore.
To achieve this target, the government would use various routes such as minority stake sales, buybacks, employee offers-for-sale, initial public offerings (IPOs) and through the central public sector enterprises (CPSE) exchange-traded funds.
The finance minister said in the Budget speech that IPOs for rail PSUs like IRCTC, IRCON and IRFC would be listed. The IPOs of Cochin Shipyard and Hudco are also pending. Funds are expected to come from the listing of New India Assurance, United India Insurance, Oriental Insurance, National Insurance and the General Insurance Corporation of India.
Besides IPOs, the Centre has already announced it would offload its stake in Pawan Hans, National Project Construction Corp (NPCC) and Project and Development India (PDI). For the coming year, strategic sales would also include a major chunk of the Rs 60,000 crore worth of stakes that the government holds in Axis Bank, Larsen & Toubro and ITC through the Specified Undertaking of Unit Trust of India (SUUTI).
Fiscal 2016-17 is the seventh year in a row when the government would not be meeting the disinvestment target fixed in the Budget. Will the government achieves this ambitious target of Rs 72,500 crore for fiscal 2017-18? Anything is possible.
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