In a year that has been ravaged by COVID-19, the expectation is that the Narendra Modi government will announce a budget that will be focused on spending big across sectors. Spending on areas like the rural employment guarantee scheme and infrastructure and further incentives to boost domestic manufacturing are likely to be under focus. But, with tax collections also impacted due to the pandemic, all eyes will be on how much the government can leverage its plan to raise revenues by other means, primarily selling stakes in public sector undertakings and privatising a few companies.
In the last budget, Finance Minister Nirmala Sitharaman sprang a surprise by announcing a target to raise Rs 2.1 lakh crore via disinvestments in 2020-21. This was three times the divestment target set a year earlier. Targeting is one thing and achieving is another. The pandemic led to a crash in stocks in March 2020 and the nationwide lockdown hurt corporate earnings, in turn hitting the government’s stake sale plans.
The government did manage some public issues, like the recent one of Indian Railway Finance Corp, an offer for sale of stake in SAIL and an offer for sale in IRCTC. Several state-owned firms like NTPC and NMDC also announced a share buyback. The government also sold some shares held by SUUTI (Specified Undertaking of The Unit Trust of India). However, the total amount raised through these share sales is a far cry from what the budget had targeted. According to the Department of Investment and Public Asset Management (DIPAM), Rs 17,957.7 crore has been received via disinvestments thus year. Analysts feel there is little time left now to meet the planned targets this year.
“The FY21 Budget had factored in robust disinvestment target, backed by a string of assets in the pipeline, which would have buffered the fiscal math. The pandemic, however, derailed and delayed the process owing to the lockdown, a gradual resumption in corporate sector activity and uncertain business outlook, despite strong equity gains. As signs of recovery took root in second half, the process has been restarted and hastened, but the limited (time) runway makes it an uphill task to complete planned strategic sales within the year,” said Radhika Rao, economist at DBS.
The stake sales of fuel retailer BPCL (Bharat Petroleum Corp) and Life Insurance Corp of India and the privatisation of Air India were expected to help raise a huge sum for the government this year. But, neither is closer to completion.
On December 14, DIPAM notified that multiple expressions of interest had been received for the strategic divestment of Air India and that the transaction will now move to the second stage. On December 31, Miliman Advisors was selected as the reporting actuary for the embedded value of LIC.
The BPCL stake sale is also likely to be pushed into the next financial year, feel analysts.
“Increase in public spending will have to be financed to a large extent, by garnering disinvestment proceeds and monetising the assets,” M. Govinda Rao, member of the fourteenth finance commission, said.
Overall, the market expectation is that the divestment target for financial year 2022 is also likely to remain elevated, given the backlog and the additional plans.
“Disinvestment target for FY22 is likely to remain ambitious at around Rs 2 lakh crore as most of the planned disinvestments for FY21 are most likely to spill over into FY22,” said Centrum Broking.
In May 2020, the government had announced a series of measures under the Atmanirbhar Bharat package to lift the economy hit by the pandemic. One of these proposals was that there would be a maximum of four public sector companies in strategic sectors. Government-owned firms in other sectors would be privatised. This has lifted expectations of higher divestment projections in the coming budget, said Sahil Kapoor, chief market strategist at Edelweiss Broking.
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Budget estimates of non-tax revenue and divestments will be a “key needle mover”, said Kapoor.
“It is worth noting that FY21 budget pegged in Rs 90,000 crore for stake sale in LIC and its residual stake in IDBI bank. While Air India and BPCL are top candidates, the materialisation of deal has been too slow for too long now. We wipe off any chances for FY21 but project a higher number for FY22 on expectations of clearing of the backlog,” he added.
Earlier this month, the government invited preliminary bids to sell 26 per cent stake in BEML. On Monday, the government invited expressions of interest for strategic disinvestment/privatisation of Nilachal Ispat Nigam, a joint venture of MMTC, NMDC, BHEL and others. The government has also invited expressions of interest to sell its stake in Shipping Corporation of India.
