The government has been actively looking at disinvestment for raising capital from the market. While the government overachieved its targets in 2017-18 and 2018-19, the target for 2020-21 was significantly scaled down owing to the Covid-19 pandemic. An ambitious target of Rs 2.1 trillion was set for 2020-21, which was reduced to Rs 320 billion, almost half of the target for 2019-20 (Rs 650 billion).
For fiscal 2021-22, the government’s disinvestment hopes are high with a target of Rs 1.75 trillion. The strategic sale of IDBI Bank, Bharat Petroleum Corporation Limited, Shipping Corporation of India, Container Corporation of India, Pawan Hans, among others, are expected to be completed during the year. Besides IDBI Bank, the government will privatise two public sector banks and one general insurance company.
Disinvestment story so far
During 2020-21, the government raised Rs 328.45 billion from share sale and buybacks in central public sector enterprises, thus exceeding its revised disinvestment target of Rs 320 billion. The divestment of a 14.82 per cent share in Hindustan Aeronautics Limited, 12.82 per cent in Bharat Dynamics Limited, 15.17 per cent in Mazagon Dock Shipbuilders Limited, 20 per cent in IRCTC, 10 per cent in the Steel Authority of India, 4.55 per cent in Indian Railway Finance Corporation Limited, 27.16 per cent in RailTel Corporation India Limited, 16 per cent in Ircon International Limited, 26.12 per cent in Tata Communications Limited and 9.63 per cent in Rail Vikas Nigam Limited was undertaken by either offer for sale (OFS) or initial public offering (IPO). The government raised Rs 28 billion through the IPO route and the remaining Rs 300 billion through OFS and buybacks. The Department of Investment and Public Asset Management (DIPAM) receipts in 2020-21 stand at Rs 718.57 billion, which included disinvestment receipts of Rs 328.45 billion and dividend receipts of Rs 390.22 billion.
During 2021-22, the total DIPAM receipts stand at Rs 359 billion so far – Rs 93 billion disinvestment receipts and Rs 266 billion dividend receipts. Recent disinvestments have taken place in the National Mineral Development Corporation (7.49 per cent), Housing and Urban Development Corporation (8 per cent), Hindustan Computers Limited (6.61 per cent) and Indian Petrochemicals Corporation Limited (now Reliance Industries Limited) (0.42 per cent), totalling Rs 93 billion.
Impact of Covid-19
The Indian economy has been adversely impacted by the coronavirus pandemic and the recovery has been relatively slow in the wake of the second Covid-19 wave. The pandemic had a significant impact on the market, making it quite difficult for bidders to do a market transaction. The due diligence process was also extremely rigorous. With the government lifting its ban on travel, the disinvestment of PSUs is now back on track.
The way forward
The government has given in-principle approval to 34 PSUs for disinvestment. These include the Bridge and Roof Corporation, Cement Corporation of India and Pawan Hans. The privatisation of national carrier Air India has given its strategic disinvestment strategy renewed impetus. In the next six months, DIPAM plans to hand over management control of a dozen public sector enterprises. The IPO of the country’s insurance behemoth, the Life Insurance Corporation of India, and privatisation of IDBI Bank too are slated for the current financial year. While the pandemic slowed down the process to some extent, corporations that showed interest in purchasing the assets believe that the disinvestment plan was hampered by “red tape and systemic apathy”. According to industry experts, the delay will have an impact on the country’s fiscal deficit, forcing the government to either cut spending in the second half of 2021-22 or borrow more to meet the budgeted expenditure.
In the 2021-22 budget, the government announced the public sector enterprises privatisation policy, as per which all PSUs will be privatised, barring four strategic sectors – atomic energy, space and defence; transport and telecommunications; power, petroleum, coal and other minerals; and banking, insurance and financial services. In these strategic sectors, the government will maintain a bare minimum presence.