Big-ticket Divestments: Govt Likely To Stick To Its Initial Target Of Rs 500 Bn

Given the market conditions, a report by Care Edge finds it an appropriate time for the government to push ahead with some big-ticket divestments in the upcoming budget. However, the government is likely to stick to its initial target of Rs 500 billion, declared in the interim budget 2024, as the urgency to divestment has reduced with a big dividend from RBI which has added sufficient fiscal space, the report added. 

Total divestment potential, care edge estimates, with the government over the governance of the firms is huge at Rs 11.5 trillion. Government in FY24 has relied mainly on the OFS (offer for sale) route to undertake small ticket stake sales. In 2023-24 disinvestment estimate was revised downward to Rs 30,000 crore from the previously budgeted Rs 51,000 crore. 

But given the comfortable fiscal situation amid strong non-tax revenue receipts, the government may not be inclined to push hard on divestment this year.

The report believes that the government will stick to the Interim Budget FY25 target of miscellaneous capital receipts (which includes divestment) of Rs 500 billion. Achieving this target hinges on the government's ability to proceed with big-ticket divestments. 

After the demerger of land assets of the Shipping Corporation of India (SCI), its possible divestment looks likely in FY25, provided favourable market conditions prevail. Media reports suggest that the government intends to invite financial bids for its entire 63.75 per cent stake in the Shipping Corporation. 

If the government offloads its entire stake in SCI, it could generate Rs 125- 225 billion as divestment proceeds. Other potential divestments include Pawan Hans and CONCOR. 

The conclusion of the election season, combined with key market benchmarks like the NIFTY 50 hovering around all-time highs, provides a perfect opportunity to advance some significant divestment initiatives. However, past issues like procedural delays, litigations by labour unions and other interest groups against divestment, and pricing issues may continue to slow divestment despite favourable market conditions. 

In case divestment lags going ahead due to headwinds, the government may continue with its focus on asset monetisation. The government has monetised assets worth Rs 1.6 trillion in FY24, short of the Rs 1.8 trillion target.

While SBI Research has suggested that the government may take a clear stance on the disinvestment of public sector banks (PSBs). Soumya Kanti Ghosh, Group Chief Economic Adviser at SBI, emphasised the need for a concrete roadmap to attract capital and boost confidence in financial institutions.