Representative image showing Indian rupee.
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Geopolitical tensions are darkening the sky and posing a threat to capital markets around the world. These have weighed on investor sentiments and prompted foreign institutional investors to pull out their money from the Indian capital market. They have withdrawn Rs 78,722 crore since August. Data shows that it is also impacting Indian disinvestment plans for 2023-2024 as it largely depends on market conditions. Although market conditions are one of the determinants, procedural delays, political opposition, and employee protests have also been the reasons for the shortfall.
The Government of India has so far realised Rs 8,000 crore or about 16 per cent of the disinvestment target of Rs 0.51 trillion through offer for sale (OFS). The government will miss its disinvestment target for the fifth consecutive time. Media reports suggest that the Union government is focusing only on ongoing transactions, and is unlikely to start the disinvestment process in any new CPSU in 2023-2024. Moreover, the proposed divestment of IDBI Bank and two PSU banks is unlikely to happen this fiscal. In an interview, the Department of Investment and Public Asset Management (DIPAM) secretary stated that chasing the sacrosanct number will be difficult ‘as the market is changing’.
That said, the stock market response to recent initial public offers (IPOs) tells a different story. The week ending November 24 was one of the busiest weeks for primary markets in recent times, as five IPOs hit the street to raise Rs 7,377 crore. The strongest demand was seen for Tata technologies with an offer of Rs 3042 crore.
IREDA, a CPSU, was subscribed 39 times and bids worth Rs 0.59 trillion were placed. Apart from this, shares of three other companies also saw good demand in the grey market. Foreign investors are investing in the stock market and are net buyers worth Rs 5,324 crore since November 22, 2023. IREDA, the first CPSU-IPO in 18 months, has become the seventh most subscribed CPSU-IPO in the last decade.
Given this, why is the government not able to divest its stake in CPSUs? Is this due to adverse market conditions or is it because of the general elections scheduled for mid-2024? The Union government is postponing financial bids for NMDC Steel for next fiscal as it is facing opposition from unions. Considering the seriousness of the situation, while campaigning in Chhattisgarh for the assembly polls, Union home minister Amit Shah said that the NMDC plant would not be privatised.
Going by media reports it seems the elections have changed the government’s priorities. This is an indication that the government is unlikely to add new names of CPSEs to the list of privatisations. Former Union finance secretary Subhash Chandra Garg is of the view that no further privatisation is likely to take place during this government’s term. Adding pressure on the government are opposition parties which oppose the sale of State assets.
Another big reason for putting privatisation on the back burner could be that the government is in a very comfortable position on the fiscal front. It seems that the government will easily meet the fiscal deficit target of 5.9 per cent of GDP and if the fiscal deficit target is being met, missing the disinvestment target is not a serious problem. Moreover, the earning shortfall is being compensated by robust dividend income and buoyant tax revenue. The government has so far realised Rs 0.25 trillion as dividends and Rs 11.60 trillion as net tax revenue.
The recent IPO saga shows that revenue shortfall is not only a cause of geopolitical tensions, the government also does not want to take the risk of privatisation in an election year. The divestment target set in the budget for the current financial year is likely to be lower in the revised estimate, strategic sales are going to be muted, and we may only see minority stake sales. After the general elections, the pace of the privatisation programme is likely to pick up.
(Vinay K Srivastava teaches at I T S Ghaziabad. X: @meetdrvinay)
Disclaimer: The views expressed above are the author's own. They do not necessarily reflect the views of DH.