Government will not get any proceeds from debt ETF: DIPAM Secretary

(From left) Finance Secretary Hasmukh Adhia, Department of Investment and Public Asset Management Secretary Neeraj Kumar Gupta and Economic Affairs Secretary Subhash Chandra Garg at Parliament in New Delhi on Tuesday
Looking to achieve a record Rs 1 trillion in divestment proceeds in FY18, Department of Investment and Public Asset Management (DIPAM) Secretary Neeraj Gupta tells Arup Roychoudhury the next year’s target of Rs 800 billion is no easy task. The Indian markets are still resilient enough for future offerings by PSUs, he adds. Edited excerpts:

You revised your divestment target to Rs 1 trillion this year. Why a lower target of Rs 800 billion for FY19?

Budget is always an exercise of balancing requirements of revenue and expenditure. This figure comes out of that exercise, keeping fiscal prudence and discipline in mind. It is a realistic figure. This year was a transitional year, with revenues under pressure due to GST (the goods and services tax). To make up for that, there is higher expectation from disinvestment proceeds and that is why we are trying to reach Rs 1 trillion this year. Next year, it is a Budget Estimate. Based on how revenues settle and how buoyancy recovers, it can always get moderated. Rs 800 billion is by no means a small target. It is almost four times the average of the previous five years. It should not be underestimated.

After reaching record levels, the markets are entering a correction phase. Do you think this is an opportunity lost for the IPOs (initial public offerings) or OFSs (offers for sale) you have planned for state-owned companies?

You see economy as a whole package and not just as market indices. We have strong fundamentals. The markets have given very high yields. Even after factoring in the corrections, returns from equity markets continue to be strong. It is a high-promise, high-yield capital market, on its own strength. The only two-global extraneous factors are oil price, which we cannot predict, and global market cues, which we can’t control.

By when can we expect Air India privatisation to be completed?

When we talk about Air India, we are talking about strategic divestment. We are planning strategic divestment in 24 CPSEs (central public sector enterprises). I am sure that you will see progress. The process is being carried out professionally and transparently.

What is the Centre’s aim behind setting up a debt exchange-traded fund?

We thought it would be prudent to come out with an instrument to help PSUs access financing from the debt markets efficiently. They have been tapping markets through corporate bonds. CPSEs account for more than 34 per cent of the transactions in the corporate bond market. Nearly 15 PSUs have raised Rs 3 trillion through bonds in three years. Individually they are neither very liquid, nor do they offer ease of transactions to investors who sometimes find it difficult to buy into individual bond products. What we are trying to do is leverage their strengths and requirements, and bring some sort of index whereby they can raise money in a regular manner. The government will get no disinvestment proceeds from such an instrument. This is for the PSUs to find access to bond markets easier and to generate more capital spending, and for investors to access these bonds. Debt ETF will not contribute to ETF proceeds. Work on this has already begun.

Are National Insurance, Oriental Insurance and United India Insurance being merged before being taken public because they are not big enough on their own for IPOs?

There is a lot of scope for creation of enterprise value through mergers and acquisitions. In line with that policy, the government will support such mergers wherever there is economic rationale. In the general insurance segment, there has been a rationale of merging these three entities rather than taking them to the IPO route separately. We are still working on the details. There can be swaps, there can be cash deals.

Can you give us some clarity on the proposed fund of funds and its tax treatment?

Equity ETFs are diversified products. They are indexed on the stock exchange and, hence, anybody who has a demat account can invest. ETFs are just like a mutual fund. In the mutual fund industry, if you invest in an equity-oriented mutual fund, the unit in your hand is treated as equity. You don’t need a demat account to invest in that. But in an equity ETF, you need a demat account. That leaves out a lot of potential investors from ETFs. Nearly 50 million portfolio investors, who are investing in a big way in mutual funds, are not able to take advantage of investing in an ETF. A fund of funds is created specifically to invest in an ETF. It will act as a market-maker. It will give access to 50 million investors in tier-2 and -3 cities. Once they gain access to equity markets, they can open demat accounts. In the meantime, this fund will continue supporting them. Its tax treatment will be the same as a mutual funds. Bharat 22 is just an index, like Nifty and Sensex. There can be multiple funds of funds investing in it.