Forbes India 15th Anniversary Special

Budget 2024 divestment: A shorter road now, but still a long way away

The government has reduced its divestment target for FY24 by 41 percent from the earlier Budget estimates, but that too may be unachievable. Is the aim for FY25 too ambitious then?

Published: Feb 1, 2024 06:25:55 PM IST
Updated: Feb 1, 2024 08:21:24 PM IST

Budget 2024 divestment: A shorter road now, but still a long way awayThe government has revised its divestment target for FY24 to Rs30,000 crore from an earlier estimate of Rs51,000 crore Image: Shutterstock

The government seems to be lacking enthusiasm to raise funds or revenue through divesting its stake in public sector companies. The government has revised its divestment target for FY24 to Rs30,000 crore from an earlier estimate of Rs51,000 crore, implying almost 41 percent lower.  

For FY25, the government aims to garner Rs50,000 crore. However, the government has been consistently failing to meet its one divestment targets year after year. In the year ending March 2024, it is set to miss the target for the fifth consecutive year.  

“The government has continued to maintain a conservative estimate on disinvestments overall, although in light of achievements so far this year, Rs50,000 crore for FY25 may look steep,” says Garima Kapoor, economist, Elara Capital. She adds that the impending sale of IDBI Bank should get revived post elections. Kapoor also expects offer-for-sale (OFS) route for raising resources to remain dominant amid the recent rally in PSU stocks.

As on January 11, the total receipts from divestments for the government was Rs10,050 crore, shows data provided by the Department of Investment and Public Asset Management (Dipam). This includes sales of the government’s stake in Coal India, Rail Vikas Nigam, SJVN, Housing and Urban Development Corporation Ltd, IRCON International and Hindustan Aeronautics through the OFS route.  

There was just a single listing of shares of a PSU company called Indian Renewables Energy Development Agency in which the government sold a 10 percent stake for Rs860 crore, through the initial public offering (IPO) route.

In FY24, the government was also working on privatising PSUs like the Shipping Corporation of India, NMDC Steel Ltd, BEML, HLL Lifecare, Container Corporation of India and Vizag Steel, besides IDBI Bank.

With the upcoming elections and the imminent implementation of the Model Code of Conduct (MCC) just months away, there appears to be limited scope for advancement in big-ticket divestment initiatives, says Care Ratings. “The big-ticket divestment initially planned for this year involving IDBI Bank now appears uncertain. Previous attempts to divest from BPCL and Pawan Hans were unsuccessful, and stake sales in the Shipping Corporation of India are currently hindered by the demerger of land assets. The projected Rs36,000 crore shortfall in the non-debt capital receipts due to slow progress on divestment is expected to be covered by better-than-budgeted performance of tax and non-tax revenues,” Care Ratings adds.

Meanwhile, non-tax revenue receipts are budgeted to grow slightly slower in FY25 which is 6.4 percent to Rs4 trillion over FY24 revised estimates (Rs3.8 trillion). 

Also read: A budget of fiscal prudence for Viksit Bharat

Receipts in the current year are expected to overshoot the budget estimates, broadly attributed to the higher-than-expected RBI dividend (against a budget estimate of Rs48,000 crore for non-tax revenues in FY24, the Reserve Bank of India [RBI] announced a dividend of Rs87,420 crore to be paid to the government of India).  

For next year, the government expects lower receipts from the RBI and financial institutions' dividend as well as from PSUs. It expects receipts at Rs102,000 crore in FY25, compared with Rs104,410 crore in FY24.   

Overall, about the Interim Budget, Dhawal Dalal, president & chief investment officer-fixed income, Edelweiss MF, says the finance minister believes in under-promising and over-delivering on the fiscal front. “Lower borrowing in FY25 is expected to decline bond yields. This will be positive for the economy,” he adds.