UNION BUDGET: In its first Budget in the third term, the NDA government is anticipated to adhere to the disinvestment target outlined for this fiscal year in its interim Budget. Finance minister Nirmala Sitharaman established the target for 2024-25 at Rs 50,000 crore. Nonetheless, in the Interim Budget presented in February, the disinvestment estimate for 2023-24 was adjusted down to Rs 30,000 crore from the original budgeted amount of Rs 51,000 crore.
The interim budget presented in February consolidated the government’s disinvestment and asset monetisation goals under ‘miscellaneous capital receipts’ rather than reporting them separately.
SBI Research, in its pre Budget report, said that the government may take a clear stance on the disinvestment of public sector banks (PSBs). The report noted the need for a concrete roadmap to attract capital and boost confidence in financial institutions.
A recent report by CareEdge Ratings also was highlighted that there is a significant disinvestment potential amounting to around Rs 11.5 trillion based on the current market capitalisation. This estimation takes into account the scenario where the government maintains a minimum of 51 percent stake in the public enterprises.
The report suggested that public sector enterprises may contribute up to Rs 5 trillion, with public sector banks and insurance firms having the potential to add another Rs 6.5 trillion to this disinvestment opportunity.
Disinvestment proceeds
For FY24, the government’s disinvestment proceeds totalled Rs 16,507 crore, while asset monetisation yielded approximately Rs 16,000 crore, surpassing the combined revised target of Rs 30,000 crore.
In the FY24, dividend collections from the central public sector enterprises (CPSEs) and other entities reached a record high of Rs 63,749 crore, as reported by the Department of Investment and Public Asset Management (DIPAM). This figure represents a significant increase of approximately 27.5% compared to the revised estimate of Rs 50,000 crore. The substantial growth in dividend revenue indicates a robust performance by state-run firms operating across various sectors.
The decision to forgo a specific disinvestment target comes against the backdrop of a mixed track record of past disinvestment efforts. Air India was the last successfully executed high-profile strategic sale, after which many others have faced delays due to market volatility, regulatory hurdles, and operational challenges within PSEs.
The offloading of the government’s stake in companies like IDBI Bank will continue. The government, along with Life Insurance Corporation of India, is selling nearly 61 percent stake in IDBI Bank.
A more flexible approach to disinvestment is likely to optimise the timing and valuation of asset sales, thereby maximising returns. It will allow the government to be more responsive to market conditions. Concurrently, there may be a renewed focus on enhancing the performance and governance of PSEs to drive long-term value creation before selling off government stakes.
The valuation of 61 listed companies, 12 public sector banks plus IDBI Bank (a development finance institution under the ownership of LIC and the Government of India), and three public sector insurance companies has grown from Rs 15 lakh crore in 2021 to Rs 60 lakh crore as of March 2024.
Higher tax collections are compensating for the absence of a specific disinvestment target for the government exchequer. The government’s ability to meet its fiscal deficit target will hinge on its success in revenue-generating measures.