The government is all set to overshoot its target and garner Rs1 trillion through the disinvestment process in the fiscal year ending 31 March 2018. For the next fiscal, the disinvestment target has been set at Rs80,000 crore.
In an interview, Neeraj Kumar Gupta, secretary, department of investment and public asset management (DIPAM), reveals the secret behind the department’s success and the way ahead. Edited excerpts:
What is the secret behind touching the Rs1 trillion disinvestment mark in a year?
There has been a paradigm shift in the working of the department which was made effective by the budget of 2016-17 when the concept of disinvestment was dropped and the concept of efficient management of investment of central public sector enterprises (CPSEs) was brought in. It was not only (that) the name of the department was changed (from department of disinvestment to DIPAM), even the mandate was expanded. A broad four-pronged approach emerged.
First, we have to efficiently manage our investment so that we can realise better value at any point of time. Second, we have to create value in our enterprises through expansion of business even through mergers and acquisitions within the CPSE space. Whole idea is do more business and don’t leave your funds idle.
Through the third approach, we started looking at investors in CPSEs more professionally. We came out with very clear dividend, bonus and buyback policies. Under those policies, CPSEs have not only paid handsome dividends, they have come up with bonuses, they have gone for buybacks and they have rewarded the investors wherever there is excess cash. In that process, the government as an investor has also been rewarded.
The fourth approach is we started looking at these enterprises for unlocking their value. In that process, we started listing CPSEs after five years. Fourteen CPSEs have been approved for listing out of which four have been already listed.
Another method of unlocking value of CPSEs was through strategic sale. With these things in mind, we started managing the investments of CPSEs. Before 2017-18, you will find only 6-7 deals taking place and average realization used to be around Rs20,000 crore. And there used to be only one method of divestment—offer for sale (OFS). From 2016-17 onwards, you have seen buybacks, OFS, Exchange Traded Funds, bulk deal and SUUTI (Specified Undertaking of the Unit Trust of India) stake sale. There were 22 transactions in 2016-17 and we could realize Rs46,247 crore against the target of Rs45,500 crore. In 2017-18, we have so far raised Rs92,500 crore against the target of Rs72,500 crore with 27 transactions.
But would you agree that a bullish market has also helped you?
Definitely. OFS looks more plausible if the market prices are good but all other instruments can be used in any market.
Critics point out that Hindustan Petroleum Corp. Ltd’s (HPCL) acquisition by Oil and Natural Gas Corp. Ltd (ONGC), which will help you to hit the Rs1 trillion mark, is actually not a disinvestment.
The effort is to create value for the enterprise, disinvestment is incidental. The biggest five oil majors of the world are all vertically integrated. In India, the private sector oil companies always want to create a vertically integrated company, then why this ambition should not be there in public sector? ONGC has no distribution capacity while HPCL has a distribution capacity of 34 mmtpa (million tonnes per annum). Rather than sitting over liquid assets in the balance sheet, they have now options of leveraging their operational efficiency, expanding their business activities, using their financial strength to acquire more business and in the process making a balance sheet which is more robust.
Why did strategic disinvestment not pick up in the current fiscal?
Strategic disinvestment is definitely on track and this process was restarted by this government after a gap of 12 years. The learnings from previous disinvestments, various oversights, observations by Parliamentary committees, authorities, regulators—we had to factor them while revising the process so that the process is transparent, rational and efficient. We have taken a little time in the initial days but I can assure you most of the deals are at advanced stages. Seven of them are already in the public domain and rest (17) of them will also come in public domain. Technically, HPCL sale is also a strategic divestment.
Air India is the biggest strategic divestment proposal on your plate.
Air India is part of the strategic divestment and it is progressing very smoothly. Whenever the expressions of interest are invited then only you will be able to understand what the contours of the deal are. And you have to wait for that.
Will the volatility in the equity market because of the imposition of the long-term capital gains (LTCG) tax affect the divestment process?
Capital gains tax was introduced in India long back when the capital market was in a nascent stage. To promote its development and depth, a concession on LTCG tax was given. This concession is not there in any developed capital market.
In terms of development index, Indian capital market is rated at the 38th position. So ours is a reasonably highly developed market. Even if you exclude the high gains of last two years, even then the equity market was giving you a return of 11.1% CAGR for last two decades. So it has consistently performed very well. It’s a high yield market today. Investors are coming here not for tax concessions, but for high yields and that is why it is a very promising market. So this correction is very well-timed and I don’t think it will have any impact on the disinvestment programme.