Losing Steam?
February 24, 2021. Speaking at a webinar on privatisation by the Department of Investment and Public Asset Management (DIPAM), Prime Minister Narendra Modi declared that the government has no business to be in business and his administration was committed to privatising all PSUs barring the bare minimum in four strategic sectors. "It is government's duty to support enterprises and businesses. But it is not essential that it should own and run enterprises," he said.
Adding that fiscal support to sick and loss-making PSUs using taxpayers’ money puts burden on the economy, the Prime Minister said there many underutilised and untilised assets in the public sector and 100 of these would be monetised to garner Rs 2.5 lakh crore.
He was speaking a few weeks after the budget, and, perhaps trying to justify the sale of public assets so far. For two consecutive years—FY18 and FY19—the government raised nearly Rs 2 lakh crore from disinvestment against a stated target of Rs 1.53 lakh crore. Then things changed. The global pandemic came amid already sluggish economic conditions of FY20. And then came the Russia-Ukraine conflict.
Lower Targets
Fast forward to Budget 2023-24. For the fourth year in a row the central government has failed to meet its own disinvestment targets. This time, the finance minister refrained from spelling out any targets for FY24. For FY23, the government managed to collect only Rs 31,100 crore through minority stake sale in state-owned PSUs, out of the Rs 65,000 crore disinvestment target kept for this fiscal. Therefore, for 2023-24, the budget has pegged disinvestment revenue at Rs 51,000 crore against Rs 65,000 crore announced for FY23.
For FY22, it had announced a target of Rs 1.75 lakh crore, which was revised lower to Rs 78,000 crore later. But the receipts were much lower. The year before, the FM while reading out the budget speech, had kept the disinvestment target of Rs 2.1 lakh crore for FY21. By the time the next budget day came, it was learnt that the disinvestment revenue stood at Rs 17,957 crore. And the year before that (FY20), against a set disinvestment target of Rs 1.05 lakh crore it received Rs 65,000 crore.
Why has this been happening? What are the factors contributing to this? At this rate of disinvestment, is it possible for the government to end its involvement in running the PSUs?
Madan Sabnavis, Chief Economist, Bank of Baroda explains. "The Budget has been sanguine on the disinvestment front once again with a target of Rs 61,000 crore being placed which includes Rs 10,000 crore of asset monetisation proceeds. Here it needs to be seen if this amount can be garnered as it has been observed that progressively, as the low hanging fruits are plucked, the ability to push through disinvestment becomes tougher. The Budget, however, once again places high hopes here."
Number Twist
The beauty of statistics lies in the art of presenting the numbers. Here, we have presented the numbers in terms of the target announced, revenue collected and the short-fall thereof. But this may create a negative impression. This year's Economic Survey presents the same data in differently though. And it goes back in time to include the data from the two years that saw higher collection of disinvestment revenue, but in the first tenure. "During FY15 to FY23 (as of 18 January 2023), an amount of about Rs 4.07 lakh crore has been realised as proceeds from disinvestment through 154 transactions using various modes/instruments. This includes Rs 3.02 lakh crore realised from minority stake sale and Rs 69,412 crore realised from strategic disinvestment transactions (in 10 CPSEs -- HPCL, REC, DCIL, HSCC, NPCC, NEEPCO, THDC, Kamrajar Port, Air India and NINL)," reads the section on disinvestment in the Survey. Here, in fact, the numbers have been clubbed for the past nine fiscal years, where the collections were much better in the first five-year of the government. Also, the Survey talks about the realisation of Rs 4.07 lakh crore but glosses over the overall announced target of Rs 7.20 lakh crore, thus making the realisation look impressive.
That being said, the fact that the world was besieged by a pandemic and the global markets collectively faced various headwinds that had impact on local economies in myriad ways have also led to the wide gap between the targets for stake sale in the PSUs and actual market interest.
The government has so far achieved just 48 per cent of the current year’s disinvestment target, and it has just two months to raise the remaining Rs 20,000 crore of the Revised Estimates (RE). So far this fiscal year, DIPAM has raised Rs 31,106 crore as disinvestment receipts and over Rs 36,000 crore as dividend. Of the proceeds collected so far this year, a majority came from the initial public offering of LIC, through which the government raised Rs 21,000 crore by divesting a 3.5 per cent stake.
The Budget did not mention new asset sales for FY24, indicating that the Centre’s disinvestment target will depend on the completion of some big transactions, including the stake sale in IDBI Bank. Experts said most of the ongoing transactions will spill over into next year including the disinvestment in Shipping Corporation of India, NMDC Steel, BEML, HLL Lifecare, Container Corporation of India, and Vizag Steel.
Explaining the rationale behind a lower target, DIPAM Secretary Tuhin Kanta Pandey said in a post-Budget briefing that these deals were dependent on market conditions. Besides, to facilitate certain strategic disinvestments, the Budget proposed allowing accumulated losses and unabsorbed depreciation allowance to be carried forward in the case of merger of one or more banking companies with any other banking institution or a company subsequent to a strategic disinvestment, if such amalgamation takes place within five years of strategic disinvestment.
Balanced Approach Needed?
The critics of large-scale disinvestment often put forth the argument that instead of divesting the government stake, there should be adequate efforts to introduce reforms, timely corrections in the overall working of these central public sector enterprises (CPSEs), especially those that have the potential of generating profits. After all, the profitable CPSEs are a good source of revenue for the central government in the form of dividends. For example, during FY22, the dividend declared by the CPSEs shot up 57.5 per cent to Rs 1.15 lakh crore compared to FY21 where it was Rs 0.73 lakh crore. The net profit of operating public sector enterprises jumped 50.87 per cent to Rs 2.49 lakh crore during 2021-22. It was Rs 1.65 lakh crore in 2020-21.
Managing the workforce in these CPSEs and PSUs post disinvestment is another tricky challenge as there are fear of job-losses, mass retrenchment or layoffs. “Balancing priorities between undertaking rapid disinvestment versus adopting a rational approach would be ideal for our economy where tackling unemployment, providing food, education and health services to all still remains a distant dream,” says a senior economist. Till then, we can only hope for the best.
ashish.sinha@businessworld.in
