Divestments - Small Failures Amid Big Wins 😓

CHART OF THE WEEK 📈

Why Divest?

Disinvestment is when the government sells off its stake in state-owned companies, also known as Public Sector Undertakings (PSUs), to the private sector, or to other investors.

The goal is to raise money for the government, reduce the financial burden of running these companies, and encourage greater efficiency and innovation by introducing competition.

4 Lakh Crore Raised Through Divestment

Since 2014, the government has raised over Rs. 4 lakh crore through divestments. This comprises nearly three-quarters of all the divestment done since 1991.

One of the major successes in this exercise was the stake sale through ETFs, which helped the government raise nearly Rs. 1 lakh crore in ten tranches.

Other than this, major sources also included the strategic sale of Air India, which fetched nearly Rs. 70,000 crore, and the IPO of LIC, which brought in Rs. 20,000 crore. Additionally, there were 16 other public enterprises, which got listed on the markets, adding around Rs. 30,000 crore.

Markets Slowing the Pace?

Despite the big success of divestments, over the last three years, the government has fallen short of its own targets. Take the current year for example. The government had set a divestment target of Rs. 65,000 crore. However, so far, it has only been able to hit Rs. 31,000 crore, barely making it to half the target.

Some factors that came in the way:

• The government was supposed to sell a 5% stake in LIC. However, the size had to be reduced to 3.5% to take care of liquidity. Despite this, it was the biggest IPO in India

• BPCL was supposed to be privatised, but then geopolitical issues and market volatility dampened those plans

• The divestment in Rashtriya Ispat Nigam is yet to take place

• The government has invited bids for a stake sale in IDBI Bank, but that is likely to stretch into the next year, at the rate it’s going

Another Failure Next Year?

Perhaps not. With targets being missed for four straight years, and the amount of visibility in hand, the government may target disinvestment revenue of a more realistic Rs 30,000-35,000 crore in 2023-24.

Stake sales are on the cards for Concor, Hindustan Zinc, Pawan Hans and Shipping Corporation of India.