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Disinvestment in FY 2020-21

Due to non-realisation of targets the position of the fiscal deficit has deteriorated.

Photo Credit : PTI

1496315519_tAREe4_sensexpti.jpg

The government was pegged a hasty target of Rs 2.10 trillion for FY21 for privatisation and stake sale in state owned companies. The target included Rs 1.20 trillion from selling stakes in the Central Public Sector Enterprises (CPSEs) and Rs 0.90 trillion from sale of public sector banks and financial institutions. Later on, the government revised the target of disinvestment to Rs 0.32 trillion. However, the government has garnered Rs 0.328 trillion through sale in the CPSEs and buybacks of shares in the financial year 2020-21 (see table). It is 15.64 per cent of total target, 27.36 percent of target for CPSEs disinvestment, and 102 percent of the revised target of disinvestment. 

The government had planned that a maximum of four CPSEs in the strategic sector would be allowed and state-owned firms of non-strategic sector would eventually be divested. It was proposed to sell - a part of the government’s holding in Life Insurance Corporation of India by way of initial public offer. Besides that, the government planned to sell the balance holding of the government in IDBI Bank to private, retail and institutional investors through the stock exchange. At present, the government holds 47.11 percent and LIC holds 51 percent stake in IDBI Bank. 

Due to non-realisation of targets the position of the fiscal deficit has deteriorated. It has surged to 9.5 percent in FY21 and expected to be 6.8 percent in FY22. Due to shrink in revenue total borrowing has also increased by 2.3 times. On the other hand, as per revised data, the interest cost has increased to 44.5% in FY21 and is projected to be at all - time high of 45.3% in FY22. This means that about half of the revenue will go in servicing old debts.

It is back-to-back second time when the government missed the target even though Sensex - the barometer of Indian economy and Nifty was touching new heights. There are many reasons why the target was not achieved. One of the main reasons for not achieving the target was the fixation of the high target. The target of FY21 was two times higher than the target of FY20 and almost four times higher than the average target of the last six years. Another reason was the outbreak of the corona pandemic that forced the government to push the timeline to the next fiscal. The lack of interest of buyers in the loss-making and sick CPSEs was also a reason. 

The Government, however, had made its full efforts to achieve the target but all the effort was in vain. Even the listing process could not be taken off. The government again proposed to sell its stake in LIC and IDBI Bank in FY2022. To give further momentum to the disinvestment process, the earlier disinvestment commission needs to be revived. The commission will make the strategy and carry out the government’s mega privatisation programme. 

Disinvestment of CPSEs during 2020-21

SN

CPSE

% of share disinvested

Method

Proceeds

Govt share post disinvestment

1

HAL

14.82

OFS

4924.23

75.13

2

BDL

12.82

OFS

0771.46

74.93

3

MDSL

15.17

IPO

0442.79

84.83

4

RITES Limited

0.0

BB

0173.16

72.2

5

IRCTC Limited

20.003

OFS

4473.92

67.4

6

KIOCL Limited

0.0

BB

0155.72

99.03

7

NTPC Limited

0.0

BB

1065.37

51.1

8

NMDC Limited

0.0

BB

1375.65

68.29

9

SAIL

10.0

OFS

2737.56

65.0

10

IRFCL

4.55

IPO

1541.37

86.36

11

Engineers India Ltd

0.0

BB

0309.97

51.32

12

RCIL

27.16

IPO

0817.60

72.84

13

IRCON International

16.0

OFS

0676.28

73.18

14

NALCO

0.0

BB

0109.12

51.28

15

GAIL

0.0

BB

0747.00

0.0

16

Tata communications

0.0

OFS

8846.72

0.0

17

Rail Vikas Nigam

9.63

OFS

0542.69

78.2

18

Others

0.0

--

3124.84

0.0

Total Proceeds

32835.45


Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this publishing house. Unless otherwise noted, the author is writing in his/her personal capacity. They are not intended and should not be thought to represent official ideas, attitudes, or policies of any agency or institution.


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disinvestment

Vinay K. Srivastava

The author is an author and teaches Finance at I.T.S Ghaziabad. He is the co-author of recently published book – Indirect Tax Reform in India: 1947 to GST and Beyond.

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