Disinvestment Target: Can the government break the jinx?

 Started in 1981, disinvestment is a process where the government sells a part or whole of its assets or a subsidiary, such as a central or state public sector enterprise, to private entities or the public. Disinvestment can be carried out through three modes vis-a-vis minority disinvestment, majority disinvestment, and complete privatisation.

The Department of Investment and Public Asset Management (DIPAM) handles the disinvestment procedures with a primary objective to improve public finances. The disinvestment may also be done to increase private ownership and improve the management and performance of the public sector enterprise.

In the past, the government has missed targets set for prior financial years, the most recent being the Rs 1.75 lakh crore target for FY22, which was revised downwards to Rs 78,000 crore in the revised estimates. The actual proceeds for FY22 were at a meagre Rs 14,638 crore, primarily owing to the disruptions caused by the Covid-19 pandemic.

For FY23 as well, the government missed the disinvestment target. The proceeds from the disinvestment came at Rs 46,035 crore in FY23, missing the revised target of Rs 60,000 crore. The government shelved the strategic disinvestment of Bharat Petroleum Corp, which was expected to bring in Rs 50,000-60,000 crore.

Learning lessons from the past and with general elections looming around the corner, the government has set a disinvestment target at Rs 51,000 crore for FY24, lower than the previous financial year.

For FY24, the government outlined plans to sell shares in IDBI Bank, Container Corporation of India, Shipping Corporation of India, and BEML. However, we believe that strategic sales would not go through at a great speed in FY24, as this is a pre-election year where the optics of this economic reform may not be seen in a popular light. The status of the various planned disinvestments are as below:

 

With almost five months into this financial year and the disinvestment plan yet to see the light of day, it is looking increasingly difficult for the government to come out of its track record of repetitively missing the targets.

To get closer to the Rs 51,000 crore target, we believe that the maximum will now have to come from offer for sale (OFS) or minority stake sales.

The government has garnered close to a combined Rs 5,500 crore through OFS in Coal India and RVNL in this financial year and is contemplating close to Rs 7,000 crore through an 11.4% OFS in IRFC going ahead.

 

Among the other major OFS planned in FY24, the government is looking at a 5-6% stake sale in Hindustan Zinc, 20% in National Fertilizers (NFL), 10% in Rashtriya Chemicals & Fertilizers (RCF) and a stake sale in RITES.

 

Apart from the OFS route, the government has other options up its sleeve, which include stake sales in NMDC Steel, HLL Lifecare, Vizag Steel, and Hindustan Zinc. Moreover, the government may remotely also consider listing companies such as the Indian Renewable Energy Development Agency (IREDA), National Seeds Corporation (NSC), and WAPCOS, a PSU in engineering consultancy and construction under the Ministry of Jal Shakti.

To sum up, we believe that unless major strategic sales happen, the government will not be able to meet the target this year as well. To overcome these challenges in the long term, the government must address multiple issues that mostly derail the disinvestment plans and are mostly related to labour unions, land titles, leases, land use, and excess manpower.

Also, the government must find ways to enhance the attractiveness of public sector stocks which usually suffer from the preconceived notion of abrupt policy changes, weak operational metrics, and sub-par corporate management. In all the gloom surrounding the disinvestment targets, the fiscal deficit target of 5.9% for the current year is not likely to be exceeded as surplus funds from non-tax sources will help bridge the gap.

(The author is the Head of Research at StoxBox)