Budget 2024: Government may lay out roadmap for divestment

If a PSU is being privatised, then the government sells more than 51% of its stake in it to the private sector. On the other hand, in the process of disinvestment, the government sells some of its shares, but its ownership rights in the PSU remain intact.

Understanding disinvestment:

The process of selling the government's stake in government companies is called disinvestment. All the companies in which the government has a majority stake are called government companies. From time to time the government keeps making decisions to reduce its stake in public undertakings (PSUs). Often in the general budget, the government sets the target of disinvestment during the financial year.

Disinvestment is an important means of raising money for the government. By issuing an offer for sale of its shares in the stock market, the government invites retail and institutional investors to invest in that PSU. Through this process of disinvestment, the government reduces its stake in the concerned company (PSU) by selling its shares and thus gets money which can then be spent on other schemes.

Disinvestment in a PSU can be done either by offering shares directly to big investors or by offering shares through a common process wherein both big and common investors can submit their applications. Many times disinvestment is seen as a means of privatisation of a government company, however, it is not so. Disinvestment refers to the withdrawal of investment by the government to such a level that the ownership of the company is not affected.