Finance Minister Nirmala Sitharaman is gearing up to present the Union Budget 2021, a crucial budget for a battered economy that is reeling from the blows dealt by the Covid-19 pandemic along with a lingering slowdown.
With widening fiscal deficit gnawing at the volatile economy, the Centre would likely turn to disinvestment as one of the tools to plug the gap.
Disinvestment or divestment can be defined as the government's action of selling or liquidating its stake in a public sector unit asset or subsidiary. This is done when PSUs start turning into liabilities and start showing a negative rate of return, in turn putting pressure on the government resources. In such cases, disinvestment helps bring down the financial burden being imposed by inefficient PSUs on the public finances, raise money and put the proceeds to better use.
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The idea of disinvestment, an annual exercise where the government sets a disinvestment target for select PSUs, was first introduced in the 1991 interim Budget by the then Finance Minister Manmohan Singh as the country was moving towards a more liberal, global and private sphere.
The Department of Investment and Public Asset Management (DIPAM) is tasked with carrying out the entire process.
The 2020-21 Union Budget had set a record divestment target of Rs 2.1 lakh crore for the current fiscal ending on March 31, 2021. The target includes Rs 1.20 lakh crore from the sale of shares of central public sector enterprises (CPSEs) and Rs 90,000 crore from a share sale in public sector banks and financial institutions, including the listing of insurance behemoth LIC.
As on January 29, 2021, the government had raised Rs 17,957.70 crore through minority stake sale in Central Public Sector Enterprises (CPSEs) and share buybacks this fiscal year. In all, it has raised Rs 35, 094.12 crore from disinvestment proceeds, which includes Rs. 17136.42 received as dividend from state-owned firms. HAL offer for sale (OFS) (Rs 4924.23 crore) and IRCTC OFS (Rs 4473.92 crore) occupy the lion’s share in the divestment receipts so far this fiscal.
While it was an ambitious target (the previous year’s target was Rs 65,000 crore), a majority of the processes came to a grinding halt with the onslaught of Covid-19 and the mayhem that ensued. At the current pace, the Centre is most likely going to miss its disinvestment target by a broad margin
Let’s take a look at some of the companies listed under the government's disinvestment programme for the current fiscal:
Air India
After its failed attempt to sell Air India in 2018, the government, in January 2020, restarted the divestment process and invited bids to sell 100 per cent of its equity in the state-owned airline, including Air India's 100 per cent shareholding in Air India Express Ltd and 50 per cent in Air India SATS Airport Services Private Ltd. Air India has seen losses ever since its 2007 merger with domestic operator Indian Airlines. In 2018, the government had offered to sell its 76 per cent stake in the airline but the bidders were required to take over the entire debt amount, one of the reasons why the attempt was unsuccessful as Air India's debt stands at over Rs 60,000 crore.
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Later in 2019, a major chunk of the debt was transferred from Air India to a government-owned special purpose vehicle called Air India Assets Holding Company Limited (AIAHL). This time around, the government has given the freedom to potential buyers to decide on the amount of the airline's debt they want to take on as part of the transaction. Tata Group and US-based fund Interups Inc are among Air India's potential buyers.
With the process coming to a halt due to the Covid-19 pandemic, the stake sale would likely be wrapped up only in the next fiscal.
Bharat Earth Movers Limited
Earlier this year, the Centre, which holds 54.03 per cent stake in BEML, had invited preliminary bids for strategic sale of 26 per cent stake along with transfer of management control in the defence PSU. As per the existing market price, a 26 per cent sale could fetch the exchequer about Rs 1,000 crore.
Shipping Corp of India
The Centre had recently invited expressions of interest (EoI) for strategic disinvestment of its 63.75 per cent stake in the Shipping Corp of India along with the transfer of management control. The government's stake sale in Shipping Corp is valued at about Rs 2,500 crore, going by the current market price.
Bharat Petroleum Corp Ltd
The Centre’s plan to sell its stake in BPCL was first announced in November 2019. The government is looking to sell all of its 52.98 per cent stake in BPCL. The government stake in the PSU is worth Rs 37,600 crore and the buyer will also have to make an open offer to acquire an additional 26 per cent from the public which will cost another Rs 19,000 crore. Late last year, Oil Minister Dharmendra Pradhan had said that the privatisation of BPCL was on track and it had received three preliminary bids, putting in expression of interest (EoI) – one of them being mining conglomerate Vedanta. The stake sale could, however, spill over to FY22, according to government sources.
The Centre also intends to sell the firm's 61.7 per cent owned subsidiary, Numaligarh Refinery Ltd (NRL), to another state-owned enterprise as part of BPCL's divestment process.
Indian Railway Catering and Tourism Corp
The government was also planning to sell up to 20 per cent stake in IRCTC and raise Rs 4,374 crore for the exchequer badly hit by the Covid-19 pandemic. The government currently holds 87.40 per cent stake in IRCTC. To meet Sebi's public holding norm, the government has to lower its stake in the company to 75 per cent.
Hindustan Aeronautics Ltd
The government had planned to sell 15 per cent stake in Hindustan Aeronautics Ltd (HAL) through an offer for sale. The sale of 15 per cent stake in HAL would fetch the government about Rs 4,000.
Steel Authority of India Ltd
The government was aiming to receive Rs 2,664 crore from the sale of its 10 per stake in India's largest steelmaker SAIL through an offer for sale (OFS).
Life Insurance Corp
In February last year, the government had announced its plans to divest a part of its stake in Life Insurance Corp (LIC), a move that could result in the partial listing of India’s largest insurance company. The government currently owns 100% stake in LIC. While it hasn’t given a blueprint on LIC’s listing, the process would certainly boost the divestment target. The Centre had also announced its plans to sell its stake in IDBI Bank, an LIC-controlled private lender, in which it owns 47.11% stake.
Other companies like Bharat Dynamics Limited, Mazagon Dock Shipbuilders Limited, Rail India Technical and Economic Service, Kudremukh Iron Ore Company Limited, National Thermal Power Corporation Limited, National Mineral Development Corporation, among others, also feature on Centre’s divestment programme for the current fiscal.
(With agency inputs)