Historically, the government has been missing divestment targets set for the full year. The government had made a drastic cut of the divestment target set for FY22 to Rs 78,000 crore from an aggressive Rs 1.75 lakh crore.
Illustration: Chaitanya Dinesh Surpur
The government has reduced its target for divestment in the financial year starting April. In the Union Budget, it has set a target of Rs 51,000 crore for the financial year 2024, which is around 21 percent lower than Rs 65,000 crore budgeted estimates in the previous fiscal. For the current fiscal too, the divestment target has been reduced to Rs 50,000 crore, show budget documents released by the government on Wednesday. However, with just two months left for the fiscal to end in March, even the reduced number is far from the halfway mark.
“On the divestment front, the government estimates are broadly unchanged, with projected revenues at Rs 61,000 crore. This could, though, imply less divestment and more dividend income from public sector companies, as the department of public assets had indicated this accounting change, which could explain lower dividend collections from other sources,” says Rahul Bajoria, MD and head of emerging markets Asia economies (ex-China), Barclays.
The government expects Rs 48,000 crore as dividends from Reserve Bank of India and state banks in FY24, which is an increase from Rs 41,000 crore in FY23.
According to Bajoria, the Union Budget 2023 presented by Finance Minister Nirmala Sitharaman sets realistic revenue targets and prioritises expenditure prior to an election year, and proposes modest fiscal consolidation along expected lines. “Overall, we believe the government has maintained a conservative approach, opting not to undertake populist measures, and it should maintain its strong track record of fiscal marksmanship,” he adds.
In the Economic Survey of FY23 released on Tuesday, the government said that out of the budgeted amount meant for divestment at Rs 65,000 crore for FY23, 48 percent has been collected as of January 18. “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. Nevertheless, the government has reaffirmed its commitment towards privatisation and strategic disinvestment of Public Sector Enterprises by implementing the new public sector enterprise policy and asset monetisation strategy,” it said in the Economic Survey. Also read: A pro-growth, surprise-free budget
Apart from the tax and non-tax revenue of the Union Government, non-debt capital receipts, which comprise recovery of loans and advances, and disinvestment receipts, have evolved as an important component of the non-debt receipts for the Union government. During FY15 to FY23, an amount of about Rs 4.07 lakh crore has been realised as proceeds from disinvestment through 154 transactions using various modes and instruments, it said. This includes Rs 3.02 lakh crore realised from minority stake sale and Rs 69,412 crore realised from strategic disinvestment transactions.
Minority stake sale of companies by government, or simply referred as divestment, is when the government intends to sell a part of a PSU from its overall shareholding, with the government’s post-stake sale ownership still above 51 percent.
In the current fiscal, the government has managed to divest Rs 31,106 crore, shows the Department of Investment and Public Asset Management (Dipam) data. Of the total amount, Rs 20,516.12 crore alone was raised by selling stake in the Life Insurance Corporation of India (LIC) via the initial public offering
(IPO) route. The government offloaded 3.5 percent stake in LIC.
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In FY23 so far, the government raised Rs 3,058.78 crore through offer-for-sale in ONGC and Rs 3,839 crore by sale of shares in Axis Bank held by SUUTI (specified undertaking of the unit trust of India) in the current fiscal starting April. SUUTI, which has minority stakes in several listed and unlisted companies, was created after UTI was bifurcated by the government in 2002.
Historically, the government has been missing divestment targets set for the full year. The government had made a drastic cut of the divestment target set for FY22 to Rs 78,000 crore from an aggressive Rs 1.75 lakh crore. In the current fiscal year, big-ticket strategic stake sale in PSUs like BPCL, BEML, Container Corporation of India and Shipping Corporation of India are still pending, which could have given a boost to the government’s earnings through divestment.
The government is also offering to sell a total of 60.72 percent stake in IDBI Bank
, which includes 30.48 percent held by the government directly and 30.24 percent by the state-run LIC, along with the transfer of management control. Currently, the government and LIC hold 45.48 percent and 49.24 percent respectively in IDBI Bank, giving them a combined stake of more than 94 percent. The stake sale is not completed yet and may spill over to the next fiscal.