How is the govt's disinvestment plan progressing and what could be the upcoming budget target?

resr 5paisa Research Team 10th January 2023 - 11:49 am
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The government is unlikely to set a target to complete any new disinvestment transaction, including sale of any public-sector bank, next fiscal year as it will focus on concluding a few deals where the process has already begun, a report in The Financial Express has said. 

What is the disinvestment receipts target for the next fiscal year likely to be?

According to the report, the disinvestment receipts target for FY24 would not be very ambitious and may be fixed at Rs 50,000-60,000 crore.

Why is the government scaling down its disinvestment targets?

According to the report, the scaling down of the disinvestment agenda is due to the fact that FY24 will be the last financial year before the general elections in April-May 2024. The ruling BJP reckons that big-ticket deals like sale of banks and oil companies could be politically inopportune.

What have government officials said on the matter?

Tuhin Kanta Pandey, secretary in the department of investment and public asset management, told FE that next year the government will pursue transactions that have been approved by the Cabinet and are already in various stages. These include IDBI Bank, ConCor, BEML, Shipping Corporation of India, NMDC Steel, HLL Lifecare and PDIL, Pandey said. 

What did the last budget target on disinvestment of state-owned banks?

Finance Minister Nirmala Sitharaman had in the FY22 Budget mentioned that two PSBs and one general insurance company will be privatised, without specifying any time-frame. However, little progress has been made nearly two years after that announcement. The government did not introduce a Bill in the monsoon session of Parliament to facilitate the privatisation.

Is the government’s stance at variance with what the Niti Aayog has said?

Yes. The government has taken a go-slow approach on PSB sales despite Niti Aayog having recommended privatisation of Indian Overseas Bank (IOB) and Central Bank of India. Analysts’ view that given the uncertain market conditions, a sell-off bid at this point is unlikely to generate good proceeds also apparently influenced the government’s decision. 

The Centre had earlier indicated that it was open to the idea of offloading its entire equity in the two banks that are proposed to be privatised, instead of the initial plan to retain a 26% stake, to garner greater interest from potential investors.

Also, is this stance not at variance with the newly introduced public sector enterprises policy?

On February 1, 2021, a new public sector enterprises policy was unveiled to limit the number of CPSEs to a minimum in strategic sectors while the government will fully exit the non-strategic sector businesses. This triggered speculations that dozens of CPSEs, including banks, fuel retailers, among others, would be privatised in the coming years. But the process for sale of oil marketer BPCL was shelved amid volatility in global crude prices, which raised questions of the lack of real pricing autonomy for state-run oil marketing companies.

What divestment transactions are expected during this fiscal year?

Except for an offer for sale tranche of Hindustan Zinc, not many big transactions are expected by March 2023.

This means that the target of Rs 65,000 crore for FY23 would likely be missed by a significant margin. The Centre has received Rs 31,106 crore via disinvestment so far, 48% of the annual target. The shortfall in FY23 would depend on how much the Centre would garner from the HZL stake sale by March.

And what about IDBI Bank?

On Saturday, the government received multiple expressions of interest (EoIs) from domestic and foreign investors for the 60.72% stake in IDBI Bank, which will go to the successful bidder along with management control.

The 60.72% stake is worth over Rs 38,389 crore at current market prices. This comprises 30.48% (Rs 19,270 crore) from the government and 30.24% from LIC.

What is the status of NMDC sale?

Another relatively decent size transaction would be the government’s disinvestment of 60.79% stake in NMDC Steel at Nagarnar in Chhattisgarh, which could garner around Rs 10,000 crore. The Centre has already invited EoI for the 50.79% stake sale in NMDC Steel and it would sell its residual 10% in the company to NMDC after a strategic buyer is identified.

Any other companies where the government could look to sell stakes?

With the demerger of non-core assets such as land and building almost done, the financial bids for BEML and SCI are expected before March 31, the officials said. The majority stake sale in SCI could be around Rs 2,300 crore and Rs 1,600 crore in BEML. The financial bids for 100% stake in relatively smaller HLL Lifecare (HLL) and Projects & Development India (PDIL) are expected shortly. All these transactions would conclude in FY24.

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