Can the government repeat last year’s performance as far as meeting or even exceeding the disinvestment target is concerned?
Before attempting to answer this critical question, it is important to realise the significance of ₹80,000 crore, the budgeted amount of disinvestment proceeds for FY 19. Such a substantial amount is expected to come from the sale of government equity in central public sector enterprises, which forms a major chunk of the non-debt receipt of the government and therefore contributes to the country’s overall revenue growth.
The number assumes even great importance in the election year for balancing the budget because there is a shortfall in the goods and service tax (GST) collections and lower export earnings. Lower disinvestment proceeds could see a slippage in the government’s fiscal deficit target.
Moreover, if the government were to present a full budget and not just a vote-on-account, it will mean announcing all kinds of sops to woo the voters for a second term in office. That too could mean serious disruptions in the government's Budget mathematics and its fiscal consolidation drive.
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While the disinvestment target of ₹80,000 crore may seem ambitious, but it pales in comparison to what was achieved in 2017-18 – a 39% increase from the budgeted target of ₹72,500 crore to touch nearly ₹1 lakh crore mark. It was not just the highest collection in the past 20 years, but one of the rare occasion when the budgeted target was exceeded.
But the situation could be different this time. Till December-end, the tentative proceeds from disinvestment – since different agencies are quoting different figures, range anywhere between ₹35,100 crore to ₹49,000 crore. Even if we were to accept the latter figure, the government has only achieved 61% of the targeted amount. So a number of brokerage houses, including Nomura, believe that the actual proceeds may fall short by ₹15,000 crore.
Anyway most of the proceeds—nearly Rs 8,300 crore—have come from its Bharat 22 exchange traded fund (ETF), an open- ended mutual fund, which comprises 22 stocks of Central Public Sector Enterprises (CPSE). It has also raised ₹1,300 crore from the initial public offering of state-owned Rail India Technical and Economic Services, the engineering and construction arm of the Railways, Ircon International, and one of India’s top shipbuilders, Kolkata-based Garden Reach Shipbuilders. Then there has been buybacks galore from Kudermukh Iron Ore Company, Neyveli Lignite Corporation, Bharat Heavy Electricals Limited etc and sale of one public sector to another (HSCC India to National Building Construction).
Hence, the National Democratic Alliance (NDA) government have used four vehicles to make disinvestments a success story, unlike its predecessors. These include sale of ETFs (Bharat 22 and CPSEs), public offering of PSUs, buybacks, sale of shares of one PSU to another block deals and sale of shares to employees.
However, a large part of the stake sales proceeds from the disinvestment programme in the past four years has been sourced through buying by Life Insurance Corporation of India (LIC). Investment by the LIC accounted for 33% of the total money raised by the government through PSU stake sales in FY 18. “Such extensive use of LIC funds to meet disinvestment target exposes the public finances to future liabilities and recapitalisation of LIC,’’ says a recent report by brokerage firm Ambit Capital.
Again, the disinvestment proceeds in FY 18 of around ₹1 lakh crore, more than 42% of these proceeds came directly or indirectly from public sector enterprises (buybacks and sale of one PSU to another), implying that just ₹58,000 crore came from private funds to public coffers. The FY 19 disinvestment is proceeding on the same lines, with 35% of the funds received till date coming from public entities. The real issue is whether such measures can actually achieve the objectives of such sell-off like greater efficiency, better governance, more investment and higher productivity?
But the strategy has worked wonders for the BJP-led NDA government. The present NDA government has had the most successful tenure of meeting disinvestment targets with an average success rate in the five years to 54% as compared to the 37% success rate of the UPA government in their 10-year term and 38% success rate of the Vajpayee-led NDA government. Total disinvestment receipts in the past five years stand at around ₹3 lakh crore.
However, it will be too early to predict whether the government can meet its targets. In the long pipeline are many such projects including follow-on offer of Bharat-22 for another ₹10,000 crore, sale of SJVN to NTPC for ₹7,000 crore, further buyback of around ₹12,000 crore and pending sale of Dredging Corporation of India, and IPOs of such PSUs such as Mazagon Dock and Rail Vikas Nigam Limited. Further inflows of around ₹30,000 crore to ₹35,000 crore can easily be raked up by the government in order to meet or even exceed the FY 19 target. It is only a matter of days before the fog lifts. We will all have the answer soon.