In the FY2021-22 Union Budget, the Government of India announced an ambitious divestment target of Rs.1.75 trillion through the fiscal year. This was lower than the FY21 target of Rs. 2.10 lakh crore; however, the government could only achieve Rs. 19,499 crore given the COVID-19-induced economic slowdown. For the next fiscal year, the government has planned divestment of about 100 underutilised and unutilised assets including the oil, gas, port, airport and power sectors. From the planned Rs. 1.75 lakh crore, about Rs. 1 lakh crore is expected to be generated from the sale of government stake in public sector banks (PSBs) and other financial institutions, and the remaining Rs. 75,000 crore is anticipated from the Central Public Sector Enterprises (CPSE) sale proceeds.
Finance Minister Nirmala Sitharaman unveiled a policy with a divestment plan for all non-strategic and four strategic sectors. The government plans to keep bare-minimum investments in the four strategic sectors, divest all non-strategic sectors and shut down the unviable ones. The Finance Minister also announced plans for a revised system of rapid closure of loss-making PSUs and an incentive package for states to sell stakes in PSUs.
The buckets of strategic sectors include transport and telecommunications; power, petroleum, coal and other minerals; banking, insurance and financial services; atomic energy; and space and defense. In the FY2021-22 Budget speech, the government announced strategic divestments of BPCL, Air India, Shipping Corporation of India, Container Corporation of India, IDBI Bank, BEML, Pawan Hans, Neelachal Ispat Nigam Ltd. and others. In addition to IDBI Bank, the government is also planning to privatise another two PSBs and a general insurance company.
While the PSUs make profit collectively, about 30% of these have reported continuous losses in the past. In an address at the launch of the National Disinvestment/Strategic Disinvestment Policy, the Finance Minister said, “Idle assets will not contribute to Aatmanirbhar Bharat. The non-core assets largely consist of surplus land with government ministries/departments and public sector enterprises. Monetising of land can either be via direct sale or concession or similar means. This requires special abilities and for this purpose, I propose to use a Special Purpose Vehicle in the form of a company that can carry out this activity.” In addition to creating an SPV and alleviating any concerns on transparency of the disinvestment process, the Finance Minister also proposed creation of an asset monetisation dashboard to track the progress and provide visibility to investors.
In his address on the issue, Prime Minster Narendra Modi mentioned, “There are many public-sector enterprises that are loss making. Many of them need to be supported through taxpayers’ money. The money, which rightfully should be spent on the poor and youth welfare, is spent on these enterprises. And, because of this, the CPSEs also prove to be a burden on the economy. For this along with a detailed roadmap, proper price discovery and stakeholder mapping, we have to learn from the global best practices. We have to keep in mind that the decisions that are taken benefit the public as well as help in development of that sector.”
Indian PSUs have undergone partial share sales (divestment) and full privatisation under the previous governments. The performances of companies that were privatised during the earlier regimes (including Bharat Aluminum, CMC, Hindustan Teleprinters, Hindustan Zinc, HTL, ICI India, Indian Petrochemicals, Jessop and Co., Lagan Jute Mills, Maruti Udyog, Modern Food Industries, Paradeep Phosphates and Videsh Sanchar Nigam) have improved significantly—both operational and financial.
Privatisation of these PSUs serves a dual-fold agenda—firstly, the money raised through divestments will be invested in public welfare schemes and secondly, the PSUs will have an opportunity to be run and managed with increased rigor under private ownership. Further, to boost the IRR on disinvestment deals and returns for bidders, the government has announced changes to tax laws—providing tax-neutral treatment to the disinvestment deals and certain tax benefits to buyers at the same time.
The private sector is going to play a vital role in the government’s plans and goals of divestment. With this, the government will be able to monetise a wide range of assets and resources that were otherwise underutilised or unutilised. The private sector will be able to acquire these assets through a competitive, fair and transparent system and utilise these to generate value for the economy and citizens.
The divestment not only creates business opportunities for private corporations, but also wealth-creation opportunities for citizens with the IPOs. The planned IPO of the Life Insurance Corporation of India (to launch after October ‘21) is expected to provide dual benefits of wealth creation for retail investors and help the government reach its divestment targets. The IPO will comprise 2,500 crore shares of Rs. 10 each. To enable disinvestment of LIC and IDBI, the Finance Bill 2021 was presented along with the Union Budget.
With policy changes, transparency initiatives and proactive management of plausible issues, the government is creating a conducive environment for stake sale in PSUs across sectors. Plans for the current fiscal year are realistic and likely to fetch the desired benefits for the economy and for the CPSEs with economic recovery after the COVID-19 pandemic.