Disinvestment: Strategic-sector sales to boost Centre’s non-debt receipts

The strategic-sectors policy unveiled in the Budget on Monday will help create a large pipeline of central public sector enterprises (CPSEs), including Bharat Heavy Electricals and Steel Authority of India, for privatisation, thereby boosting the Centre’s non-debt receipts meant to be spend on development programmes, department of investment and public asset management (DIPAM) secretary Tuhin Kanta Pandey told FE.

He said the disinvestment receipts target of Rs 1.75 lakh crore for the next fiscal would surely be met, if not exceeded. The process has already commenced for big-ticket sales, so achieving the target won’t be difficult at all, he added. Privatisation of fuel retailer BPCL is expected to conclude early in the year while the mega IPO of insurer LIC will likely hit the market in Q3-Q4, Pandey said.

Monday’s Budget admitted that only Rs 32,000 crore will be mopped up via disinvestment of CPSEs in the current fiscal against a massive target of Rs 2.1 lakh crore.

“We are serious about this number (Rs 1.75 lakh crore). If we conclude all the deals (in the pipeline), we will end up realising more…there is no embargo for us,” Pandey said.

Strategic disinvestment pipeline for this fiscal — BPCL, Air India, Shipping Corporation of India, Container Corporation of India, IDBI Bank, BEML and Pawan Hans — are all expected to be completed in FY22. At least two, BPCL and Air India deals, could be expected in the first quarter of next year itself, as expressions of interest (EoIs) have been received from potential buyers and financial bids are expected soon. Additionally, privatisation of two public sector banks and one general insurance company are to be taken up in FY22.

The Budget unveiled the strategic sector policy which entails that the government retain at least one PSU in the four broad sectors while the remaining ones can be privatised or merged or closed. These sectors are: atomic energy, space and defence; transport and telecommunications; power, petroleum, coal and other minerals; banking, insurance and financial services. In the non-strategic sector, all CPSEs will be privatised.

“There is a directional shift…Privatisation is now at the centre of the agenda of structural reforms,” Pandey said. By announcing the privatisation of two banks and a general insurance company, the government has kick-started selective denationalisation in the financial sector. “It is basically a reversal of processes which happened in 1960s and 70s, wherein several private banks were taken over,” he added.

As FE had reported earlier, the NITI Aayog had asked the government to retain control over the country’s top four state-run lenders — State Bank of India, Punjab National Bank, Bank of Baroda and Canara Bank, even as it recommended that three small public-sector banks – Punjab & Sind Bank, Bank of Maharashtra and UCO Bank, be privatised on a priority basis

The government’s plan to sell 52.98% stake in BPCL, which was worth about Rs 60,000 crore in November 2019, around the time the stake sale proposal was approved by the Union Cabinet. At the current market prices, the stake is worth about Rs 45,150 crore only. However, the actual receipts will depend on valuation and consideration of a premium.

The IPO of LIC was the second-biggest component of the budgeted disinvestment target for this fiscal. While the valuation of the insurer – which often plays White Knight to the government – will be known closer to the listing, it is believed to be worth Rs 8-11.5 lakh crore, meaning a 10% IPO could fetch the government Rs 80,000-1,10,000 crore. Pandey said the LIC IPO may hit the market in the third or fourth quarter of this year as preparation of embedded value and restatement of accounts of LIC may take about six months.