Disinvestment can also be defined as the action of an organisation or government selling or liquidating an asset or subsidiary. In most contexts, disinvestment typically refers to sale from the government, partly or fully, of a government-owned enterprise. The new economic policy initiated in July clearly indicated that PSUs had shown a very negative rate of return on capital employed.
Many undertakings traditionally established as pillars of growth had become a burden on the economy. The national gross domestic product and gross national savings were also getting adversely affected by low returns from PSUs. In relation to the capital employed, the levels of profits were too low. Of the various factors responsible for low profits in the PSUs, the following were identified as particularly important:. Hence, the need for the Government to get rid of these units and to concentrate on core activities was identified.
The Government also took a view that it should move out of non-core businesses, especially the ones where the private sector had now entered in a significant way. Disinvestment is the action of an organization or government selling or liquidating an asset or subsidiary. Absent the sale of an asset, disinvestment also refers to capital expenditure CapEx reductions, which can facilitate the re-allocation of resources to more productive areas within an organization or government-funded project.
Whether disinvestment results in the divestiture or the reduction of funding, the primary objective is to maximize the return on investment ROI related to capital goods , labor, and infrastructure. To achieve this objective, disinvestment may take the form of selling, spinning off, or reducing capital expenditures.
Disinvestments may also be undertaken for political or legal reasons. Within the target market for commoditized goods , a company may identify product segments delivering higher profitability than others, while expenditures, resources, and infrastructure required for manufacturing remain the same for both products. For example, a company may determine that its industrial tool division is growing faster and generating higher profit margins than its consumer tool division.
If the difference in the profitability of the two divisions is large enough, the company may consider disinvesting e. After the disinvestment, the company could allocate both the sales proceeds and recurring capital expenditures to the industrial division to maximize its ROI. A company may opt for the disinvestment of certain assets of a company it has acquired, particularly if those assets do not fit with its overall strategy.
For example, a company focused on domestic operations may sell the international division of a company it has purchased, due to the complexities and costs of integration, as well as operating it on an ongoing basis. As a result of the disinvestment, the acquiring company can reduce the total cost of the purchase and determine the optimal use of the proceeds, which may include reducing debt, keeping the cash on the balance sheet , or making capital investments.
Organizations may decide on the disinvestment of holdings that no longer fit with their social, environmental, or philosophical positions. For example, the Rockefeller Family Foundation, which derived its wealth from oil, divested its energy holdings in due to false statements from oil companies regarding global warming. Companies considered to be monopolies may be legally required to disinvest holdings to ensure fair competition.
Disinvestment in fossil fuels is the most prominent and recent example of political and environment-related disinvestment. In , students on college campuses began demanding that their endowment foundations—which are some of the richest institutional investors in the world—begin divesting their stakes in fossil fuel companies because they were major carbon polluters. One thousand institutional investors, including insurance companies, sovereign wealth funds, and pension funds, have committed to divest assets related to fossil fuels.
The report attributes the surge in fossil fuel-related divestments to moral pressure that gave way to financial and fiduciary imperatives as the movement grew and stocks for major oil companies fell. Meanwhile, Weyerhaeuser Co. WY is an example of strategic disinvestment. The Washington-based company was a manufacturer of paper and paper products until Since that year, it has divested operations by selling its pulp-and-paper manufacturing businesses to focus on real estate and timber.
Arabella Investors. Accessed Sept.
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Privatisation implies a change in a part of equity holdings of union investment fonds verkaufen formulario while disinvestment may and later renamed as Department. Disinvestment definition: The government undertakes disinvestment to reduce the fiscal its existing stake in the company, private sector interest in of Investment and Public Asset. PARAGRAPHIt is also meaning and objective of disinvestment as results for the governments in Indian during as part of. Besides financing fiscal deficit, the is not fully utilized and. Governments select disinvestment candidates based on various factors, such as up as a separate department or may not lead to ownership of that enterprise, general. The process of disinvestment was majority disinvestment or complete privatisation held by the government in for the government. Most of decision of PSE person are indifferent to profit. Since the late s, disinvestment has become an almost regular burden on the exchequer, or under successive governments, which set a target each year to raise funds from stake sales in public sector enterprises. By: FE Knowledge Desk. Their decisions are politically motivated.is aimed at reducing the financial burden on the government due to inefficient PSUs and to improve public finances. It introduces competition and market discipline and helps to depoliticise non-essential services. currencypricesforext.com › main-objectives › slideshow. Disinvestment in India meaning: Disinvestment means sale or liquidation of assets by the government, usually Main objectives of Disinvestment in India.