After Air India and NINL privatisations, the government’s divestment dreams have come to a grinding halt with the government likely to miss its divestment targets for the fifth consecutive year. But what has forced the government to temper its expectations? Data shows the Narendra Modi government is struggling to raise even half of the proceeds it had targeted in this fiscal year that ends on March 31.
Finance Minister Nirmala Sitharaman in this fiscal year’s Budget had announced that the government sought to raise around Rs 51,000 crore. The Department of Investment and Public Asset Management (DIPAM) website shows the government has managed to raise a meagre Rs 10,051.73 crore this financial year so far, with the largest chunk coming through Central Public Sector Enterprises (CPSEs) IPOs (Initial Public Offering) and OFS’ (Offer For Sale).
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With only six months left in the BJP-ruled government’s tenure, analysts are sceptical of any further sales and thus economists speculate what the government’s stance on divestments in the forthcoming Budget will be.
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“The stronger run-rate of tax revenues and dividends from state companies is likely to make up for the miss in divestment targets this year. We do not expect big-ticket proceeds in the rest of the year, as two to three of prospective asset sales face procedural and administrative delays,” Radhika Rao, senior economist, DBS Group Research told ET Online.
“Indications are that the upcoming FY25 goal might be set lower than the FY24’s Rs 51,000 crore, with these goals also running parallel to the upcoming election cycle,” she added.
Govt’s 2023 divestment drive
The government had first announced privatisation plans for companies like Bharat Petroleum Corporation Ltd (BPCL), Shipping Corporation of India (SCI) and CONCOR around 2019 but got delayed following the break out of the Covid-19 pandemic. Analysts have now said that these companies may be privatised only after the General Elections.
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Reports say the strategic sale of CPSEs like BEML, SCI, HLL Life Care, NMDC Steel, and IDBI Bank is likely to be completed in the current financial year. Yet, bids have not been invited owing to the due diligence process and demerger of core and non-core assets’ completion.
The government had received multiple EoIs for IDBI Bank as early as January 2023. But the bidders are still to get ‘fit & proper’ clearance from the Reserve Bank of India. The government managed to raise funds through the sale of shares in Coal India, Rail Vikas Nigam, HUDCO and SJVN. Interestingly, Life Insurance Corporation of India subscribed to over half of HUDCO OFS.
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It is now likely that divestment in CPSEs may spill over to the post-election period.
“No privatisation will take place in this tenure of the government,” news agency Reuters quoted Subhash Chandra Garg, former finance secretary, as saying. Garg said there is a lack of political interest in privatisation policy ahead of the elections due to take place.
“Forget divestment and privatisation for the next six months because of lack of political interest in privatisation policy.”
Sources told ET that factors like stock market volatility due to global developments have forced the Finance Ministry to revisit divestment timelines for some companies. Furthermore, delays have also been caused by administrative challenges.
Govt to change its divestment approach?
The Modi government’s divestment approach received a huge boost when it managed to successfully privatise Air India to Tata Group and NINL to TSLP in 2022. Yet with evolving factors in the market, the government has been forced to temper its targets.
For example, the government was forced to scrap the strategic divestment of BPCL given its poor reception. It was planning to raise around Rs 50,000 crore from the same. The government is facing opposition from employee unions in its endeavour to sell RINL and Vizag Steel. More recently, it cancelled the divestment of SAIL’s Salem steel plant due to a lack of interest from the bidders.
Furthermore, the government has also been forced to shuffle its priorities ahead of the General Elections, due to be held in the April-May period.
Given the turbulent external factors and stock market volatility, the Finance Ministry was looking to adopt a ‘prudent sell-off’ approach, ET reported in October last year. The government is now looking to sell its assets only at the right price with the interests of investors in mind, people in the know told ET, saying that the government will not ‘divest for the sake of divestment.’
Readers may note that the government’s divestment targets account for less than 2 per cent of its total non-debt receipts. In addition, the government is also confident of achieving its fiscal deficit target of 5.9 per cent of the gross domestic product (GDP) in the ongoing financial year.
“As long as the government is meeting its fiscal targets and there isn’t a shortfall, missing divestment targets is fine,” news agency Reuters quoted Rahul Bajoria, economist, Barclays Investment Bank as saying.
