Will the Government meet its divestment targets for the FY2020?

Will the Government meet its divestment targets for the FY2020?

24 Jul 2019
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While tax revenue showing only little enthusiasm, the centre is looking forward to banking on non-tax revenues to reduce its fiscal deficit down to 3.3 % of the gross domestic product in the current fiscal year 2019-20.

 

The Budget 2019 increased the divestment target up from Rs 90,000 crore to Rs 1.05 trillion and announced its focus on the consolidation of public sector undertakings as well as strategic disinvestments.

 

"The Government has also decided to modify the existing policy of retaining a 51% stake, inclusive of the stake of Government-controlled institutions," said the Finance Minister while exploring the options that could bring down the stake of the Government in certain public sector units to 51%.

 

She went on to say that in order to provide additional investment space, the Government will be aiming at realigning its holding in (central public central enterprises) CPSEs, including banks to allow for greater availability of its shares so that the shares of the company could be improved.

 

Disinvestment in Air India

 

The plan to sell the majority of stakes in the debt-ridden Air India has not floated so well. However, the centre is looking forward to giving the disinvestment of the airline another shot this year.

 

"Strategic disinvestment of select CPSEs will continue to remain a priority for this Government. The Government would not only re-initiate the process of strategic disinvestment of Air India but would offer more CPSEs for strategic participation by the private sector," added the Finance Minister.

 

When the Government conducted the auction of Air India last year, it had decided to retain a share of 24% in the airline — one of the primary reasons why the buyers did not seem to be interested in such a venture. The Government had to call off the auction.

 

It was also announced that the fund of funds set up to move on with the disinvestment of central public sector enterprises will attract concessional rate for short term capital gains along with the long term capital gains which have already been extended to such funds.

 

Meeting shareholding norms

 

The Finance Minister also said that the Government is keen on taking steps that are necessary in order to meet the public shareholding norms of 25% which is applied to all listed public sector undertakings. The move is aimed at increasing the permissible sectoral limits that apply to all public sector undertakings that are part of the emerging market index. The Finance Minister went on to add that the public sector undertakings might have to dilute their stake further Sebi has been asked to consider raising the current threshold for public shareholding from 25% to 35%.

 

The Department of Investment and Public Asset Management is working on appointing a panel of six transaction advisors to help figure out the way forward with the sale of non-core assets of public sector undertakings.

 

In March, the Government gained Rs 1,000 crore after the sale of Dredging Corp to a consortium and Rs 2,000 crore after selling enemy shares. The Government has also been successful in completing two initial public offerings of Mazagon Docks and MSTC, an Indian state-owned e-commerce company based in Kolkata. The last financial year (2018-19) saw the Government collecting Rs 80,000 with disinvestment receipts.

 

The Government also managed to sell a 51.11% stake in Hindustan Petroleum to state-owned Oil and Natural Gas Corp for Rs 36,915 crore. Besides, ONGC was said to buy shares worth 77.88 crore shares in Hindustan Petroleum Corp Ltd (HPCL) at Rs 473.97 per share in an off-market deal. Another transaction which could be noted as a success for Government's was the selling of an entire 52.63% equity holding in Rural Electrification Corporation (REC) by Power Finance Corporation (PFC) in an off-market deal sealed at Rs 14,500 crore.

 

There has been much going on in the Government's plan to generate wealth with disinvestment, as NITI Aayog has prepared a list of assets that include industrial and land owned plants of enterprises that are state-owned, such as the NTPC plant of Badarpur, Bharat Earth Movers LTd., Cement Corporation of India, and Steel Authority of India Ltd.

 

Read more about last 5 Union Budget Highlights at Finserv Markets

 

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