Union Budget 2026: Finance Minister Nirmala Sitharaman will unveil Budget 2026 on Sunday, Feb. 1, 2025, in the Parliament amid India Inc's expectations of higher capex allocation, fiscal consolidation, and equity tax relief. FM Sitharaman will present the upcoming budget in the backdrop of geopolitical uncertainties and trade deal negotiations with the US. Ahead of the Budget, here's a breakdown on disinvestment, a key aspect which shapes how public spending and government spends are discussed in the annual event.
Disinvestment is when the government sells its ownership stake in public sector enterprises (PSUs). These stakes may be sold partly or fully, and the buyers can be private companies, institutional investors, or the general public through listings. The shares of the PSUs held by the government are the assets at the disposal of the government. If these shares are sold to get cash, then earning assets are converted into cash.
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Union Budget 2026: Here's all you need to know about disinvestment
1. Why is disinvestment imprtant for government?
Disinvestment is typically done for three major reasons. Firstly, the government raises funds for the budget. The money earned goes into the Budget as non-tax revenue and helps finance government spending. Secondly, disinvestment reduces the government's role in business. Some industries do not need state ownership and disinvestment helps the government focus on areas like defense, welfare, and infrastructure. Thirdly, it improves efficiency as private participation can bring higher competitiveness, stronger innovation, and higher profitability.
2. What is disinvestment target?
In the Budget document, the central government fixes the amount it expects to raise during the fiscal by divesting its stake in state-run companies. This figure is becomes the disinvestment target. Once finalised, the target is projected as part of the government's non-tax revenue and helps bridge the gap between expenditure commitments and the overall fiscal discipline.
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3. How is disinvestment shown in Budget?
Disinvestment receipts appear in the Budget under 'Capital Receipts' < 'Other Capital Receipts' < 'Disinvestment Proceeds'. Every year, the Budget sets the amount that the government aims to raise by selling its stakes. The Budget then reports revised estimates (RE), which shows what the government actually expects to raise and 'actuals' which shows the amount that was actually raised by the end of the year.
4. What are the types of disinvestment?
There are three major types of disinvestments. First is a minority stake sale in which the government sells more than 50% of its shares. The PSU remains under government control. One of the most common methods for this is an offer for sale (OFS) in stock markets. Second is a strategic disinvestment in which the government sells a majority stake (often 51%) to a private player and the control shifts to the buyer. Third is an initial public offering or a listing of a PSU, in which a government-owned company is listed on stock exchanges. The government may retain majority control but sells a part of its stake to public investors.
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5. Why does disinvestment get difficult?
Disinvestment may get difficult sometimes due to weak market conditions as low investor confidence can reduce appetite for PSU shares. Valuation disputes may also dent plans as potential buyers and the government may disagree on the right price. Additionally, regulatory hurdles by authorities may often delay disinvestment plans for large PSU sales.
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