Govt misses disinvestment numbers by more than half; reduces next year's target to Rs 65,000 crore

The government has been 'conservative' when it comes to disinvestments, but it might be able to realise its target for FY23, according to experts

By Pooja Sarkar Forbes India Staff

Published: Feb 1, 2022 06:07:51 PM IST

Updated: Jun 6, 2022 03:43:55 PM IST

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During the year, the government successfully sold its debt-laden airline Air India to the Tata Group for Rs2,700 crore.

Image: Shutterstock

It’s the first time since the BJP-led government came to power that its finance minister missed using the word ‘disinvestment’ in the Budget speech. An explainer on why and how it matters.

What is disinvestment?

When the government sells any stake in its companies, it is known as disinvestment. It includes all public entities and the shares it holds in companies.

How does disinvestment help the government?

Like every household has a budget, the government too has a budget that it needs to manage. Fiscal deficit is the difference between the amount of money the government earns and what is expends, the higher the difference the higher the fiscal deficit. Fiscal deficit is written as a percentage of the gross domestic product (GDP). So, the government earns from taxes, GST and more importantly, disinvestments. Disinvestments usually form a significant part of the government’s earnings. This year, the government’s fiscal deficit stands at 6.9 percent; for next year, it has targeted it at 6.4 percent. In ideal circumstances, as part of the financial responsibility and budget management Act, 2003, the government should target to keep its fiscal deficit up to 3 percent and the debt restricted at 40 percent of GDP by 2024-25. So, for the government to reduce its fiscal deficit, it needs to earn more which it expects through divestments.

Did the government meet its disinvestment target for the year?

No. It didn’t.

As of February 1, the government has raised Rs12,029.9 crore from pure disinvestments. During last year’s Budget, Finance Minister Nirmala Sitharaman had announced that it expects to raise Rs1.75 lakh crore through selling of assets like Air India, Bharat Petroleum Corp Ltd (BPCL) and Shipping Corp, among others.

Tuesday’s Budget documents show that the government has reduced this expectation to Rs78,000 crore for the year, basically slashing more than half of its target. This number sends a clear signal to the Street that it expects the rest of the money to come from the share sale programme of Life Insurance Corporation of India (LIC); the rest of the sale will spill over to next year.

“The government has been realistic about its targets, and this means it is expecting the sale of assets like BPCL and others to happen in FY23. It has increased its borrowings to fund its activities, but on disinvestments, it has clearly been conservative,” says Suvodeep Rakshit, senior economist at Kotak Institutional Equities. According to the government, for FY21, its actual receipts from disinvestments stood at Rs37,896.96 crore. For FY21, it had targeted to raise an ambitious Rs2 lakh crore.

What is the next year’s target?

The government has targeted to raise Rs65,000 crore during the coming year. It is the lowest projection since it has come to power. Not just that… it has projected a nominal GDP rate at 11 percent.

“The government has budgeted a lower amount of Rs65,000 crore for FY23. In the five years to FY21, India has only been able to achieve more than Rs90,000 crore twice—during FY18 and FY19. Therefore, the government might be able to realise its budgeted disinvestment target for FY23 given the pace of the economic recovery and the buoyancy in the markets, says Dr Arun Singh, global chief economist at Dun and Bradstreet.

What did the government sell and what does it plan to sell?

During the year, the government successfully sold its debt-laden airline Air India to the Tata Group for Rs2,700 crore. Although the number is not much, it means the government does not have to keep spending more money on the cash guzzler. Some other things that it sold during the year includes the sale of Specified Undertaking of The Unit Trust of India’s stake in private lender Axis Bank worth Rs3,994.33 crore, and the National Mineral Development Corporation OFS worth Rs3,651.37 crore.

It plans to sell its shares in LIC which will be one of the large IPOs in the country. Post that, next year it plans to sell the old assets it has been trying to offload.

Why does disinvestment matter to you and me?

Disinvestment is important because the government right now does not earn enough to finance its expenses. Like if you don’t earn enough, you can’t have that iPhone or that expensive holiday, and if you still want it, you will end up taking a loan, which means you will end up paying more in the long run because of the interest attached to the loan. And if the government doesn’t disinvest, it either has to raise taxes or borrow more.

As economic commentator and author Vivek Kaul explains: “Borrowing more right now means that taxpayers in the years to come will have to repay. As earlier finance minister Arun Jaitley said in his July 2014 Budget speech, we cannot leave behind a legacy of debt for our future generations. We cannot go on spending today which would be financed by taxation at a future date.”