On Target After Seven Long Years

Amid a drop in indirect tax collections and teething problems arising in the wake of the  implementation of the goods and services tax (GST), besides a rise in global crude oil prices, the Narendra Modi government has a reason to cheer. It is set to not only meet its disinvestment target of Rs 72,500 crore — the highest ever — for the current financial year but exceed it by a handsome margin.

The government had been missing its disinvestment target for seven consecutive years. So when finance minister Arun Jaitley, presenting the Union Budget of 2017-18, set the disinvestment target at Rs 72,500 crore, many were sceptical. They thought it was unrealistic.

On 20 January, the government-owned Oil and Natural Gas Corporation (ONGC) announced buying out the centre’s entire 51 per cent stake in Hindustan Petroleum Corporation (HPCL) for Rs 36,915 crore.

Simply put, the amount will not only make the government’s pockets heavier and help it in exceeding the disinvestment target but also adhere to fiscal deficit target of 3.2 per cent of GDP in the current financial year.

According to data published by the Department of Investment and Public Asset Management under the finance ministry, this year, the government has managed to garner Rs 32,826.47 crore through disinvestment of CPSEs compared to the target of Rs 46,500 crore, and Rs 4,153.65 crore against a target of Rs 15,000 crore from strategic disinvestment. What has come as a big bounty for the government is the listing of insurance companies such as the New India Assurance Company and General Insurance Corporation. The exercise has fetched the government Rs 17,357.48 crore, while the target was only Rs 11,000 crore this fiscal.

This year, the government-owned India Tourism Development Corporation announced its decision to exit several loss-making hotels under its Ashoka umbrella including Hotel Lake View Ashok (Bhopal), Hotel Brahmaputra Ashok (Guwahati) and Hotel Bharatpur Ashok (Bharatpur). However, sources add that the government may altogether make an exit from its hotel business.  


So far (till 22 Jan 2017), the government has raised about Rs 54,337 crore,  which is over 74 per cent of the disinvestment target.

Sources in the finance ministry say that in the coming year, the government is likely to rely on its richest CPSEs to ensure success of its disinvestment exercise. Unlike in the past, the government is no more pushing for stake sale only in loss-making PSUs. It is open to divest part of its stake even in profit-making CPSEs, say sources.

The oil PSUs such as ONGC, Indian Oil Corporation, Bharat Petroleum Corporation, Gail India and HPCL have witnessed a healthy growth in their net worth in the last one year. The Steel Authority of India, NHPC and Bharat Heavy Electricals, have also managed to grow their net worth (see How Rich Is The Government).

Interestingly, at a time when the going has been tough for government-owned banks, a few such as the State Bank of India, Punjab National Bank, Bank of India and Canara Bank have also seen an increase in their net worth.

“The government must look at offloading a part of its stake in the rich PSUs to ensure that the exercise is a success and disinvestment does not necessarily mean changing the nature of the companies,” says State Bank of India groups’ chief economic adviser Soumya Kanti Ghosh. “After many years, it seems that the disinvestment target would be achieved this financial year, and this is critical in the wake of the tight fiscal situation,” he adds.

Meanwhile, the government, to give a push to the disinvestment exercise, launched the Bharat-22 Exchange Traded Fund (ETF) comprising 22 stocks of CPSE’s, public sector banks and strategic holding of Specified Undertaking of Unit Trust of India (SUUTI).

As announced in Union Budget 2017-18, the government also put in place a revised mechanism and procedure to ensure time-bound listing of identified CPSEs on stock exchanges, a move that’s aimed at unlocking the true value of the companies while promoting ‘people’s ownership’ by encouraging public participation in these companies and making them accountable to its shareholders.

Additionally, to ensure that the disinvestment exercise bears fruit, the government opted a system of “rolling plan”, replacing the earlier system of annual plans, to take advantage of the market conditions without any loss of time and with an element of surprise for market players.
In the next financial year too, the government is expected to maintain its momentum on the disinvestment exercise. The Union Cabinet has approved allowing foreign direct investment (FDI) into the bleeding public sector Air India. Little wonder that now many would keenly examine Jaitley’s budget announcements on 1 February. The disinvestment target could well be further increased.

A senior government official adds that the divestment strategy will be crucial in the coming years as the income from disinvestment can help in addressing the fiscal situation. “The government is on track as far as the disinvestment exercise is concerned. The same vigour will be followed in the next financial year as well,” he notes.

Many public sector banks, which have managed to turn their bottom lines around and record healthy recovery of the non-performing assets, are also set to hit the market in 2018-19. A large part of their non-core assets are also likely to be monetised. Earlier, chief economic adviser Arvind Subramanian too had underlined the need to offload a chunk of government stake in public sector banks.