Budget 2018: Milking PSUs may not be a good idea

Finance Minister Arun Jaitley cheeringly announced in the Budget, the government has crossed the disinvestment target for this financial year. In the last budget, he pegged the disinvestment target at the highest ever level at Rs 72,500 crore. Jaitely said, "I am happy to inform the House that we have already exceeded the budget estimates. I am assuming receipts of Rs 1,00,000 crore in 2017-18." He set a Rs 80,000 crore disinvestment target for the coming financial year.

First of all, disinvestment is not a happy phenomenon as it's like selling one's own properties to meet the expenditure at home. Obviously, cash flow shortage is the issue. If you keep that issue aside, since we need to move ahead without financial hiccups, the government has achieved the target primarily putting the egg from one basket to another. The government sold its entire 51.11 per cent stake in the public sector undertaking (PSU) Hindustan Petroleum Corp (HPCL) to another PSU Oil and Natural Gas Corporation (ONGC) and raised Rs 36,915 crore.

Without this deal, which the government did just a day before the budget, the disinvestment number would have been much lesser than the target or would have been just around half. Though ONGC is a cash rich hydrocarbon upstream player, the company slightly over stretched its balance sheet for the deal. In addition, the oil refiner HPCL is a worthy asset to hold in a scenario where the oil price is rising.

Another PSU, which the government continuously taps is Life Insurance Corporation of India (LIC). It has invested Rs 44,000 crore in the equity markets between April-November this year, a rise of 52 per cent over the year-ago period. In the first half of the current fiscal, the life insurance major had more than doubled its investment in equities to Rs 39,224 crore from Rs 18,000 crore. LIC chairman V K Sharma told media recently, "This year the government's disinvestment program has picked up in the first half and, we, being the long term investor have invested there." Again, it is a PSU which is heavily funding the government's disinvestment programmes.

Again, a day before the budget, the government has fixed the coupon rate of up to 7.68 per cent for the Rs 80,000 crore recapitalisation bonds, which will be issued to 20 PSU banks during the current fiscal for meeting the regulatory capital requirement and growth needs. Bank recapitalisation bonds are being issued as part of the Rs 2.11 lakh crore bank recapitalisation plan of the government. Here also, the government issues bonds to PSU banks and collects the money (not as currency) and round trips it back to the banks.

Jaitley said in the budget speech that the government has approved listing of 14 PSUs, including two insurance companies, on the stock exchanges. The government has also initiated the process of strategic disinvestment in 24 PSUs, including strategic privatisation of Air India. In another deal, the government targets to merge three public sector general insurance companies - National Insurance Company, United India Assurance Company and Oriental India Insurance Company - and go for its public issue.

Can the government do the disinvestments without the help of PSUs? It may be a tough task even in this buoyant market.