A dent in India’s aggressive privatisaion plans is not unsettling New Delhi’s ambition

Many were confused, if not surprised, by the end of Finance Minister Nirmala Sitharaman’s Budget speech earlier this week after there was no mention of disinvestments of state assets, something that the government in recent years have been very vocal and aggressive about.

Soon after in the Budget document, the numbers showed how New Delhi has trimmed targets for this and the next fiscal years of disinvestment revenue, something that is of great help to achieve the fiscal deficit aim.

For the next fiscal year starting April 1, the disinvestment target is pegged at Rs 51,000 crore. The government also revised this financial year’s revenue target from stake sale to Rs 50,000 crore from Rs 65,000 crore forecast earlier.

Disinvestment is on track

However, what North Block top officials today clarified is that privatisation is very much on track.

Disinvestment is an ongoing scheme, it is not something new, Tuhin Kanta Pandey, secretary of the department of investment and public asset management, said during post-budget stakeholder interaction by the finance minister.

“It is an ongoing policy and we have several transactions which have to be taken to the logical culmination. We will also have to be mindful of the markets, as well as of the minority shareholders, he said.So, keeping into this the finance ministry is going into a “calibrated disinvestment strategy” and going ahead with all the transactions, Pandey said.

The disinvestment secretary said some of the steel companies, including NMDC, IDBI Bank, Shipping Corporation of India, BEML, HLL Lifecare, PDIL are among the ones moving towards disinvestments.

He further said that disinvestment is a complex process, especially when the government is handing over the management control, while cooperation from state governments is also important.

From aggressive to conservative

Most experts have termed the disinvestment targets as conservative. ICICI Research said the disinvestment targets are softer than anticipated, possibly on account of muted capital markets sentiments. “Furthermore, large ticket disinvestment is nearing closure. Timelines on IDBI Bank and Concor need to be watched. We believe that a few earlier announced disinvestment (IDBI Bank, RINL, Concor and large zinc manufacturer) would be completed in FY24E.

However, New Delhi’s ‘conservative’ or ‘calibrated’ approach towards disinvestment is still in stark contrast to the aggressive stance it had shown in recent years despite opposition.

Over the last few years, opposition parties have been protesting that certain individuals or entities were continuously bagging the businesses the government was selling even if these entities did not have any experience in running such businesses.

Prime Narendra Modi-led government has time and again said the government should not be in the business of doing business. It had set record disinvestment revenue targets in the past and went on to either sell part stake in key companies including LIC, or completing or announcing privatisation of state companies such as flag carrier Air India or refiner Bharat Petroleum Corporation Ltd despite several protests.

While Air India sale succeeded after several hiccups, Bharat Petroleum Corporation Ltd (BPCL) divestment failed.

Before we get back to the hit and miss list, remember the government had also announced a policy to privatise all state-run companies barring a few in strategic sectors such as defense and telecommunications.

A dismal tryst with disinvestments

The annual Economic Survey said India has raised about Rs 4.07 lakh crore as disinvestment proceeds in the past nine years. In the current fiscal, out of the budgeted amount of Rs 65,000 crore, 48 per cent or over Rs 31,000 crore has been collected as of January 18, 2023, with a large chunk coming from LIC initial share sale alone.

In the last four years, the government has missed the budget disinvestment target by a wide margin. It had to terminate the sale of Central Electronics Ltd as the successful bidder was disqualified for not disclosing it had pending legal cases. The sale of Pawan Hans was also frozen as a member of the winning consortium had a NCLT case against it.

The pandemic-induced uncertainty, the geopolitical conflict, and the associated risks have posed challenges before the plans and prospects of the government’s disinvestment transactions over the last three years. Also, lukewarm investor response, employee union agitation and legal hurdles have been big obstacles for the government.

Thus, experts said that considering the fact there is little scope for further minority stake sales in bluechip PSUs (Public Sector Undertakings) and the problems in executing strategic sale transactions, the government needed to set realistic disinvestment targets in budgets.

Disinvestment challenges ahead

The finance ministry will now face the challenge of the strategic sale of IDBI Bank where the government and LIC together are selling about 61% stake, out of the current holding of 95%. Strategic disinvestment of Rashtriya Ispat Nigam Ltd (RINL) or Vizag Steel, where the privatisation move is being vehemently opposed by the companies staff, is another challenge, while there is no certainty on when the government can move ahead with BPCL sale.

To be on the fiscal consolidation roadmap, the government has shunned populist measures, avoided announcing large-scale freebies and even slashed allocation to a scheme that supports employment in the hinterland, a move that has already raised criticism from the opposition parties. Meanwhile, it has again raised the capex target, to an astounding Rs 10 lakh crore, which experts as well as industry leaders see as a big boost to the economy just when it’s needed — consumers aren’t buying enough goods and companies are shying away from investment.

However, a paltry disinvestment target, amid a Rs 10 lakh crore capex target, is of no help to the government that is looking to walk the tightrope of boosting growth in Asia’s third largest economy while remaining committed to the fiscal glidepath.

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