Is the Disinvestment Strategy on the Right Track as Per the Present Scenario?

The discussion on disinvestment of the central public sector undertakings (CPSEs) has almost disappeared these days. Nowadays, it has been overtaken by the tax-buoyancy. Tax buoyancy has become the new focal point of discussion and the headlines of mainstream media. However, the Government is planning to revisit its bank privatisation strategy and to speed up the privatization of public sector banks.

According to the Economic Times, the government may set up a panel to formulate a fresh list of PSBs that can be privatised. On the other hand, the government's performance on the disinvestment front has not been satisfactory as disinvestment proceeds continue to languish. The government did not achieve the target even in the last financial year and this is the fourth consecutive financial year when the target could not be achieved.

The Finance Minister's Silence on Disinvestment

Over the years, disinvestment has been an important component of the non-debt capital receipts of fiscal management for the Government. The term ‘disinvestment’ was first used by the then finance minister Yashwant Sinha in his mid-term budget speech for the Financial Year 1991-92. Since then, it has been a regular feature of the budget speeches of every finance minister. This is the reason that’s why whenever the finance minister delivers their budget speeches, experts start talking about the target of disinvestment apart from changes in tax rate and other provisions.

And so, it was surprising for all of us that the finance minister did not speak about the disinvestment target for the financial year 2023 in her budget speech. What would be the target? It was found only in the budget documents.

However, the government has pegged the target at Rs 0.51 lakh crore. While the present government has been very vocal and aggressive towards disinvestment, the Prime Minister himself has made a strong pitch for privatisation and monetisation of underutilised and unutilised assets. He is of the view that the government has no business being in business.

However, the target tells another story. The disinvestment target for the current financial year is not only the lowest budget target since 2014-15, it is smaller than the average budget and revised target of the last nine years. During the period the average budget estimate has been around Rs 0.99 lakh crore and the average revised estimate has been Rs 0.56 lakh crore. 

Previous Disinvestment Targets 

In the last few years, huge targets were set for disinvestment, with the government failing to achieve it. This can be a reason for setting small and realistic targets, with the government not being successful on the front of disinvestment. Nevertheless, higher dividend and robust tax revenue and savings by several departments has given leverage to the government to keep a lower target. However, even after the small target, the government is hopeful to contain its FY24 fiscal deficit target of Rs 17.87 lakh crore – 5.9 percent of GDP.

The secretary DIPAM – T K Pandey expects the disinvestment target for next fiscal is sensible, however, still it would be challenging as there is still uncertainty in the market. The Ministry of Finance is going into a ‘calibrated disinvestment strategy’ and some of the steel companies including – IDBI Bank, NMDC, BEML, HLL Lifecare, PDIL, and Shipping Corporation of India are moving towards disinvestment.

According to the DIPAM website, the government has realised only Rs 0.35 lakh crore from the disinvestment in FY23. Of that the amounts realised by the government stake sales include Rs 3059 crore from ONGC, Rs 20516 crore from LIC, Rs 457 crore from GAIL, Rs 2724 crore from IRCTC, Rs 2901 crore from HAL, and Rs 5125 crore in remittances from SUUTI.  

Apart from this, in the last nine financial years, from 2014-15 to 2022-23, the government has realised Rs 4.45 lakh crore as disinvestment proceeds. According to the  Economic Survey 2022-23, these proceeds have been realised through 154 transactions using various modes against, according to budget documents, the budget estimates of Rs 8.97 lakh crore and a revised estimate of Rs 5.07 lakh crore during the same period. Such proceeds include Rs 3.02 lakh crore raised from minority stake sale and Rs 0.69 lakh crore realised from strategic disinvestment in 10 CPSEs - Air India, Kamarajar port, HPCL, HSCC, NPCC, REC, DCIL, THDC, NINL and NEEPCO.

Is it the Right Time to Think About Disinvestment?

Now the question arises as to why the government is not able to complete the disinvestment and achieve the disinvestment target. The major reasons for slower disinvestment are lack of investor interest due to the complex disinvestment process, tight regulations, arduous approval process, onerous legal procedure, lack of interest of private players in loss-making units etc. The government faces pushback from trade unions, employee groups, and political parties whenever it initiates the privatisation of any unit. A number of court cases have been filed by the employee’s unions and other interest groups against the disinvestment policy besides specific transactions hindering the process.

The Economic Survey states that the Covid19 global pandemic induced uncertainty, the ongoing conflict between Russia and Ukraine, and the associated risk have posed challenges before the plans and prospects of the disinvestment transactions over the last three years. Though, the government has refurbished its responsibility towards the disinvestment of CPSEs by implementing the new Strategic Disinvestment Policy. Despite the new disinvestment policy, the realised proceeds in FY23 is almost halved of the budget target of Rs 0.65 lakh crore and 70.6 percent of revised target of Rs 0.50 lakh crore.

Is it not the right time to think about the execution of the disinvestment policy? It needs to be considered whether the government should continue with the slogan ‘the government has no business being in business at a time when the government could not achieve the target for four consecutive years. Moreover, in the last nine financial years, the disinvestment target has been achieved only twice - in FY18 and FY19. Thus the target has been revised every year except for FY19. The budget estimate has been reduced seven times, increased once in 2017-18, and left unchanged once in 2018-19.  

Subsequently, in the last few years, the dividend from CPSEs has been more than the proceeds from disinvestment. The dividend proceeds offset the shortfall in the disinvestment proceeds. In FY23, the government raised Rs 0.59 lakh crore against the revised target of Rs 0.43 lakh crore. This is 1.69 times more than the disinvestment proceeds. Therefore, during the period when time is not favourable for disinvestment, the government should click the pause button and work on the restructuring of loss-making units to save profit, increase dividend revenue and create interest for potential private-players.

According to the latest available Public Enterprise Survey 2021-22, there are 59 loss-making CPSEs and these are eating Rs 0.15 lakh crore of the profit of 188 profit-making CPSEs by which the overall net profit reduces to Rs 2.49 lakh crore. Now even if the government hits the ground running and brings the top-ten zombie CPSEs to the break-even level then not only the overall profit of CPSEs will increase to 2.63 lakh crore, but this will not only create interest among the private players but also increase dividend revenue. Here it is worth noting that no one would be interested in loss-making units and it has already been seen in the case of Air India.

(Vinay K Srivastava teaches at I.T.S Ghaziabad. He earned a PhD from the Department of Commerce and Business Administration, University of Allahabad. He has published more than 150 articles in various journals, magazines and newspapers. This is an opinion article and the views expressed above are the author’s own. The Quint neither endorses nor is responsible for them.)