Budget 2024 | Disinvestment: Patchy road before interim budget

The government’s disinvestment agenda, particularly strategic divestment has been missing the budget targets since FY20.

While strategic disinvestment was impacted first by the COVID-19 pandemic-led disruptions, geo-political upheavals and general economic uncertainty from 2022 have had a second-round impact causing major privatisation announcements to gather dust.

While the government did not bring up legislative changes to enable strategic divestment in government-owned banks and an insurance company, the Bharat Petroleum Corporation Limited (BPCL) stake sale was scrapped due to a lack of buyers while the demerger of Bharat Earth Movers Limited (BEML) and Shipping Corporation of India (SCI)’s land entities has taken almost two years, thus delaying the stake sale process. The Container Corporation (CONCOR) divestment was never taken up other than the cabinet approval in 2019 and a lot of smaller privatisations like Pawan Hans and CEL also fell through.

Other than Air India and Neelachal Ispat Nigam Limited (NINL), the government’s privatisation track record doesn’t have much to showcase at the moment.

The government is still working on IDBI Bank privatisation since the RBI approval of ‘fit and proper’ for IDBI Bank’s initial bids is still awaited. The government was hopeful of taking the National Mineral Development Corporation (NMDC)’s Bastar steel plant’s privatisation forward and had got initial bids last year. However, recent media statements of the Home Minister indicate that the plant will not be privatised.

The government’s only recourse is relying on equity markets for offers for sale or IPOs which again have to be calibrated as per market situation, volatility in stocks and investor interest. LIC's shares are a case in point, with India's largest insurance company crossing its IPO price of ₹949, only as recently as Tuesday, nearly 20 months after it went public in May 2022.

Government sources suggest that the yearly disinvestment goals should be lowered to a more realistic range of ₹25,000 crore to ₹30,000 crore. This adjustment is attributed to the reduction in government equity in prominent public sector enterprises (CPSEs) over the past 7-8 years and a perceived lack of enthusiasm for privatisation from the political leadership.

With just a day away from the government’s second interim budget, watch this space for more on the revised target for divestment for the current and more importantly, next fiscal.

In the meantime, here’s a look at how disinvestment receipts have fared since FY20 to the current financial:

FY21 disinvestment includes ₹1.20 lakh crore from divestment and ₹90,000 crore from strategic sales in PSBs and FIs. FY22 disinvestment comprises ₹75,000 crore from disinvestment and ₹1 lakh crore from strategic sales in PSBs and FIs. FY23 is likely an estimate, not the final figure.