Definition
Disinvestment
Disinvestment is the sale by the government of part or all of its stake in a public sector enterprise to raise resources or improve efficiency.
Disinvestment lets the government monetise its holdings in central public sector enterprises (CPSEs) without necessarily giving up control. It can take the form of minority stake sales through stock markets, offers for sale, or the buyback of shares by cash-rich PSUs. Budgets typically set an annual disinvestment target.
When the government sells a controlling stake along with management to a private buyer, it is called strategic sale or privatisation. Beyond raising money to fund the deficit, disinvestment is justified on the grounds that the private sector can often run businesses more efficiently than the state.
Related terms
- Strategic SaleA strategic sale is disinvestment in which the government sells a controlling stake in a public sector firm together with management control to a private buyer.
- Disinvestment TargetThe disinvestment target is the amount the government budgets to raise in a financial year by selling stakes in public sector enterprises.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.