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Budget 2019: Finance Minister Nirmala Sitharaman's public challenge

Sitharaman is looking to rake in ₹90,000 crore through disinvestments in PSUs. Will the market play along?

Manu Balachandran
Published: Jun 28, 2019 09:40:39 AM IST
Updated: Jul 4, 2019 12:09:11 PM IST

Budget 2019: Finance Minister Nirmala Sitharaman's public challengeLast year the government tried to sell Air India, but could not find many takers
Image: Kamil Krzaczynski / Reuters

Nirmala Sitharaman, the new finance minister who took over from Arun Jaitley of the previous NDA government, has her task cut out. On the one hand, she has to pull Asia’s third-largest economy from the brink of a significant slowdown. In May, India lost its spot as the fastest-growing major economy in the world: The country’s GDP slipped to a 5.8 percent growth in the last quarter of FY19, down from 6.6 percent in the previous quarter, and lower than the 6.4 percent growth registered by China.

On the other, she also has some significant disinvestment targets to enlarge the government kitty. This year, the government is looking to target ₹90,000 crore in disinvestments, up from ₹85,000 crore it raked in last year. The bulk of last year’s earnings, however, came from the central public sector enterprise (CPSE) exchange-traded fund (ETF), a pool of PSU shares, as against the government's desire to sell strategic stake in government-owned companies.

This year, the government raised ₹2,350 crore in the first two months of the current fiscal. Now, to kickstart the disinvestment process, Niti Aayog, a think-tank that advises the government, has already drawn up a list of 50 PSEs where the government is likely to sell its stake. Air India, the country’s national carrier that has been mired in losses for a decade, is expected to be on top of the list. Last year too, the government had tried to sell Air India, but it didn’t find many takers.

Among other PSEs in the pipeline could be Pawan Hans Ltd, the sale of which was put on hold early this year after a single investor bid for it. Similarly, last year, the government shelved plans to sell a 26 percent stake of Bharat Earth Movers; it could be back in the running again.

These apart, there are other loss-making entities like Scooters India, Bharat Pumps & Compressors, Hindustan Fluorocarbon, Hindustan Newsprint, HLL Life Care, Central Electronics, Bridge & Roof India, Nagarnar Steel plant of NMDC and units of Cement Corporation of India and ITDC.

“It all depends on the market,” says Madan Sabnavis, chief economist at Care Ratings Limited. “Over the past few years, ETFs had become very attractive and were able to bring the money. However, if the market doesn’t perform well, the government will have to depend on one public sector company to buy from the other during a stake sale.”

In the past, the government has resorted to forcing one PSE to buy a stake in another to ensure that it meets its disinvestment targets. The biggest of those came in 2015 when India's largest insurer Life Insurance Corporation picked up almost half of the shares on offer in Coal India’s ₹22,558 crore disinvestment. Last year, oil exploration company ONGC bought the government’s entire 51 percent stake in Hindustan Petroleum Corporation Limited for ₹36,915 crore.

“The problem with these cross-fundings is that they never solve any problem,” Sabnavis adds. “In the long run, that isn't the best option because you are only deferring the problem.”

The government is also expected to divest its stake in some of its profit-making units, including Indian Oil Corporation, Gail India and Bharat Heavy Electricals. There are over a dozen public sector enterprises in India where the government holds over 50 percent stake. These include Engineers India Ltd (52 percent), Indian Oil Corporation (52.18 percent), Oil and Natural Gas Corporation (64.25 percent), Power Finance Corporation (59.05 percent), Power Grid Corporation (55.37 percent), Bharat Petroleum Corporation (53.29 percent), Gail India (52.64 per cent), Shipping Corporation of India (63.75 percent), Bharat Heavy Electricals (63.17 per cent), NBCC (68.18 percent) and Container Corporation (54.80 percent).

The government is also reportedly firming up plans to ensure the outright sale of CPSEs within four months of issuance of documents to potential investors, a move that could make it more appealing to investors.

Meanwhile, the plan to go in for disinvestment could see some opposition and the government should brace for tricky times ahead. For instance, the Swadeshi Jagran Manch (SJM), an affiliate of the RSS that deals with economic issues, passed a resolution seeking a rethink on Niti Aayog’s proposals of disinvestment of 92 CPSEs.

"SJM further strongly urges the government not to go ahead with its plan to disinvest these strategically important subsidiaries of Air India and rather support them to expand their businesses by claiming back their businesses given to private parties earlier. For example, ground handling the business of key airports given to AISATS, a Singapore-funded company during the UPA regime," a statement from the SJM said.

On its part, the finance ministry has already begun scouting for consultancy firms for assistance in selling land and building assets of public sector companies as it works towards achieving the ₹90,000 crore target. India’s disinvestment programme began under the previous BJP-led NDA regime headed by Atal Bihari Vajpayee when the government sold its stake in companies such as Videsh Sanchar Nigam Limited, Hindustan Zinc, Balco and IPCL to private entities.

(This story appears in the 05 July, 2019 issue of Forbes India. To visit our Archives, click here.)

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