Despite coalition politics, Centre can maintain disinvestment stance: Only the Union Budget can give

Concerns around coalition politics notwithstanding, the Centre is likely to maintain its current stance on disinvestment and asset monetisation. Investors and markets await the Union Budget to reveal the government’s actual intent

Disinvestment receipts. In a break from the past, this term went missing in the Interim Budget 2024-25. It was replaced by a category called “miscellaneous capital receipts” with a target of Rs 50,000 crore for FY25. A closer reading of the fine print of the Budget documents reveals that this includes “receipts on account of management of equity investments and public assets through various mechanisms”. 

This fresh categorisation is seen to reflect the government’s strategy of a measured approach to stake sales and dividends from central public sector enterprises (CPSEs). This approach ensures that CPSEs are not just seen as a means to raise revenue, but the government also takes measures to enhance and improve their productivity and management. The stance is likely to continue in the Union Budget.

Despite concerns about the impact of coalition politics and regional allies on strategic stake sales, it is business as usual for the government. According to senior government sources, the current policy on disinvestment and strategic sales of CPSEs will continue, at least for now. The Union Budget 2024-25, too, is likely to maintain the Rs 50,000-crore disinvestment target. Asset monetisation, which has seen reasonable success in recent years, too, will continue. Together, these will ensure that the central government continues to have sufficient fiscal space to undertake expenditures while maintaining fiscal discipline.  

While there could be some demands in the future from allies, ongoing strategic stake sales—including those in IDBI Bank and Shipping Corporation of India—will continue, say sources. Work on stake sales in other CPSEs such as BEML may be started later in the year. But strategic sales of CPSEs such as Container Corporation of India and Bharat Petroleum Corporation Ltd (BPCL) are off the table for now, they add. In fact, Petroleum and Natural Gas Minister Hardeep Singh Puri had said in June that BPCL was not for sale. 

These stake sales will be complemented by a steady source of revenue from CPSE dividends, as has been the trend in recent years, the sources indicate. The Interim Budget had pegged dividends from CPSEs at Rs 48,000 crore for FY25, a tad lower than the Revised Estimates of Rs 50,000 crore for FY24. This target could be slightly revised upwards given that the actuals for FY24 were higher at Rs 63,749 crore, the sources add.

DIVIDENDS AND MORE  

Tuhin Kanta Pandey—Secretary in the Department of Investment and Public Asset Management—had said in a post-Interim Budget interaction that dividends have been a steady source of income. “We continue to get the dividends as long as the CPSEs perform well and earn profits,” he had said. In FY25, the Centre has so far received Rs 4,917 crore as dividend from CPSEs.

Taken together, receipts from disinvestment and CPSE dividends have fetched close to Rs 9 lakh crore since FY15, with some big-ticket transactions, such as the listing of Life Insurance Corporation of India and the strategic sale of Air India.

However, progress has often been in fits and starts, and with proposals having been withdrawn due to concerns from ministries or prevailing market conditions. Over the years, the actual disinvestment proceeds have been lower than estimated and have been scaled down in the Revised Estimates from the Budget Estimates. Even in FY24, the target from miscellaneous capital receipts was lowered to Rs 30,000 crore in the Interim Budget from the earlier Rs 61,000 crore (which included Rs 51,000 crore from disinvestment proceeds). 

In recent months, disinvestment transactions have been put on hold due to the Model Code of Conduct for the General Elections. Stake sales are expected to pick up pace now, although experts believe it is unlikely that too many big transactions would take place in FY25, given that there are just about eight months left.
The Centre has also identified land parcels and buildings of BSNL and MTNL for monetisation.

A recent report by rating agency CareEdge highlights the potential for disinvestment, saying the government could raise as much as Rs 11.5 lakh crore at current market rates, while maintaining a majority stake of 51%. “Indian Railway Finance Corporation, Hindustan Aeronautics, Coal India, and Oil and Natural Gas Corporation are the top firms in terms of divestment potential mathematically,” the report says, noting that the decision to divest in listed firms may be influenced by the industry’s strategic nature, the companies’ profitability, financial market conditions and welfare and social considerations.

Rahul Ahluwalia, Co-Founder & Director of the Foundation for Economic Development, points out that apart from Air India, there hasn’t been a strategic sale of a CPSE in recent years, although there have been a few PSU-to-PSU transfers. “It is highly advisable that the government should exit PSUs, but it is unlikely that this will happen. Greater disinvestment and privatisation in financial sector enterprises such as banks is advisable as they influence a lot of other sectors and the government stepping away will be good,” he says, adding that as of now, there is no indication of the new government’s stance on disinvestment and CPSE stake sales.

“But given that the ministry allocations have been retained, status quo is likely. We, however, do not expect to see too much disinvestment but we do not foresee a dramatic change in stance either,” he says.

Maulik Sanghavi, Partner-Corporate Finance and Investment Banking at accounting and tax advisory firm BDO India, concurs that there is a strong case for disinvestment in PSUs as the government has often supported them by providing them with business opportunities or funds. “These companies also need to be run professionally and efficiently,” he says. He points out that in the past year and a half, PSU stocks have been doing well and the government should think in terms of offloading some shares as it would be a good opportunity for both investors as well as the Centre.

Vinay K. Srivastava, Associate Professor at I.T.S Ghaziabad, expects disinvestment to pick up pace now that the polls are over. He says the government is likely to move back to the term ‘disinvestment receipts’ in the Union Budget. He, however, advocates that rather than focussing on profit-making CPSEs, the effort should be to exit loss-making CPSEs or alternatively to restructure them and monetise their assets before engaging their employees elsewhere.

The number of loss-making CPSEs has reduced to 57 or 25% of the 254 operating CPSEs in FY23 from 33% in FY20, he points out. “Such initiatives will also help improve the finances and functioning of CPSEs. This would be like killing two birds with one stone; on the one hand, it would improve the overall net profit of the CPSEs; on the other, it would increase the disinvestment goal and improve fiscal arithmetic from proceeds derived from divestment or monetisation of these loss-making units,” he says.

ASSET MONETISATION 

The Union Budget 2024-25, to be presented by Finance Minister Nirmala Sitharaman, is likely to include fresh targets for asset monetisation under the National Monetisation Pipeline (NMP), which is expected to provide more space to focus on capital expenditure. Indications are that the target for FY25 may be raised to Rs 1.9-2 lakh crore.

For FY25, several infrastructure ministries have already begun identifying targets under NMP. For instance, the National Highways Authority of India has already identified and published an indicative list of 33 assets to be monetised during 2024-25, which is expected to help investors plan efficiently and accelerate monetisation. 

NMP had listed potential core assets of central ministries and public sector enterprises for FY22 to FY25 with a target of Rs 6 lakh crore. Of this, assets worth Rs 3.86 lakh crore have been monetised in the past three years, according to official data. A total of Rs 2.3 lakh crore was raised in FY22 and FY23, against the target of Rs 2.5 lakh crore. In FY24, Rs 1.56 lakh crore was raised against the target of Rs 1.8 lakh crore. 

Srivastava notes that NMP has been doing well. “But the numbers do not directly reflect in the Centre’s balance sheet and fiscal mathematics, and we have to see if and how these funds help in infrastructure projects because NMP was introduced to finance the infrastructure pipeline,” he cautions.

Big-ticket stake sales that excite the market and investors have been few and far between and much more can be done on disinvestment, especially exiting loss-making firms. But the Centre’s measured approach on CPSEs has served it in good stead. What’s more, it has also meant that there is no last-minute rush to offload stake in CPSEs to meet targets that has in the past led to a muted response from the markets. But the pressure is on for extra resources, given that Bihar and Andhra Pradesh have presented large wish lists to the Centre that would require a huge amount of funds. For now, investors and markets await the Union Budget on July 23 to reveal the actual intent of NDA 3.0 on disinvestment.