Every year the government comes up with a target for public sector divestment in the Budget, only to miss it. Through the year, factors such as choppy market conditions, bad timing, departmental inertia, controversies, and faulty pricing derail the divestment process. In FY16, the target was Rs 69,000 crore, but only Rs 19,514 crore was divested till March 18. Reports suggest that the government is drawing up a list of about 80 PSUs for divestment in FY17, with a target of Rs 56,000 crore. How can the government break the jinx and achieve its target?
As market trends influence the success of a stake sale, the government should be ready to divest its holding when the mood on the street is buoyant. “Often the government is unprepared and waits till the end of the financial year,” says D.K. Srivastava, chief policy advisor at consulting firm EY. Clearances and worker- or union-related issues should be sorted out way ahead. “If the government is keen and aggressive, the target can be met or at least the performance can be bettered,” Srivastava adds.
Srivastava points out that in bureaucratic circles, a posting in divestment is considered a bad one because decisions (on pricing, valuations, etc.) might be questioned by subsequent governments, adversely affecting an officer’s career. This builds up fear and inertia, affecting preparedness. “They [bureaucrats] can be given some sort of immunity, provided they follow all the rules,” says Srivastava.
Steps like re-examining book value, de-leveraging the balance sheet, and revaluing land and other assets can give a truer picture of a company’s worth, says Jaijit Bhattacharya, partner, infrastructure and government services, at another major consultancy, KPMG in India. Some experts add that a strong dividend yield can also be used to attract investors with low risk appetite.
But what if the market plays up? In such circumstances, says Srivastava, idle cash on the books of other PSUs can be used to buy the assets, and when the market improves, the stake can be sold at the right price. However, this tactic has its critics because it is used as a face-saver, or an artificial way to shore up divestment figures.