Disinvestment: Govt pins hopes on PSU stake sales

The government is banking on the highest-ever receipts of Rs 72,500 crore from disinvestment in public sector units (PSUs) to finance social and infrastructure spending and rein in the fiscal deficit at 3.2 per cent of GDP in 2017-18.

 

All options are being explored to meet the disinvestment target: minority stake sales, strategic sales and listing of general insurance companies.

 

Later, Finance Minister Arun Jaitley said, the government will put out a mechanism to list all public sector enterprises in a time-bound manner and launch another exchange traded fund with diversified PSUs to achieve the target.

 

How far all this will be realised is an open question given that the government has been unable to meet its Budget estimates for the last few years.

 

The plan does not, for instance, account for variables such as a capital flight to the US owing to rising interest rates, which would impact Indian equity markets.

 

The government is projected to overshoot the target it set for minority stake sales by Rs 4,000 crore. So far, it has received close to Rs 30,000 crore on this head, including Rs 3,000 crore from selling its holding in Larsen & Toubro from the portfolio of the Specified Undertaking of the Unit Trust of India (SUUTI).  The revised target for 2016-17 is Rs 40,000 crore.

 

The shortfall is principally expected in strategic sales – or privatisation — by Rs 15,000 crore (Budget estimate) in 2016-17, if it happens at all.

 

There have been no strategic sales so far, although the government had set an initial target of Rs 20,500 crore in 2016-17 revised downward to Rs 5,500 crore. 

 

The Department of Investment and Public Asset Management (DIPAM) has started the process of selling 26 per cent equity in BEML, the heavy machinery manufacturer, inviting bids from advisers to the issue.

 

The selected adviser would be required to manage the bidding process and advise the government on fair reserve price range while considering.

 

In September last year, the Cabinet had cleared strategic sale of Bharat Pumps & Compressors. Later, the government said it would also explore privatising India’s first pharma company, Bengal Chemicals & Pharmaceuticals as well as Hindustan Antibiotics after selling their surplus land.

 

These are among the PSUs that NITI Aayog has identified for sale of the government’s majority stake to private companies in order to bring in greater efficiency and professionalism in their functioning.

 

Given past experience, finance minister tweaked the break-up of disinvestment for the next financial year.

 

Minority stake sales are projected to fetch Rs 46,500 crore, strategic disinvestments are targeted to yield Rs 15,000 crore.

 

The Cabinet has already given in-principle approval to stake sale in four general insurance and one reinsurance companies, which is expected to make the exchequer richer by Rs 11,000 crore.

 

This time, some ground work has already started.  However, the low solvency ratio, the size of capital relative to the premiums written of National Insurance and Oriental Insurance may be hurdles to the process.  as on September 30, 2016, these two companies have a solvency ratio of less than the 1.5 per cent stipulated by the insurance regulator.

 
 

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