New Delhi: The disinvestment of central public sector enterprises (CPSEs) surprisingly turned out to be a key highlight of Arun Jaitley’s Union Budget 2018.
In his speech, Jaitley said that the newly revamped Department of Investment and Public Asset Management is set to overshoot the ambitious Rs72,500 crore disinvestment target for 2017-18 by aiming to garner Rs1 trillion during the year ending 31 March, aided by completion of the acquisition of Hindustan Petroleum Corp. Ltd by Oil and Natural Gas Corp. Ltd for around Rs37,000 crore.
With privatisation of Air India on track apart from approval for listing of 14 CPSEs and strategic disinvestment of 24 CPSEs, Jaitley has set a disinvestment target of Rs80,000 crore for 2018-19.
After successfully launching the exchange traded fund (ETF) Bharat-22 to raise Rs14,500 crore in 2017-18, Jaitley announced that DIPAM will come up with more ETF offers including a debt ETF.
Ranen Banerjee, partner and leader at PwC India, said this is possibly the first time that a disinvestment target has been exceeded. “A higher target has been taken for the next year too at Rs80,000 crore. With Air India’s divestment on the anvil and further tranches of exchange traded funds, the target looks achievable," he added.
Vivek Gupta, partner at KPMG India, however said that the long-term capital gains tax and the additional cess are dampeners for the equity market. “There is also the argument that equity demands that all incomes suffer tax. The government’s call obviously is that this tax will not cause the market to be disturbed to the point that it will disrupt investment flows or disinvestment targets," he added.
Jaitley also announced merger of three public sector insurance companies—The Oriental Insurance Co. Ltd, National Insurance Co. Ltd and United India Insurance Co. Ltd—followed by a listing.
The merging of these three state-run insurers will lead to creation of a mammoth organization, and will be a key part of the government’s divestment target for fiscal year 2018-19.
“It is a very positive move. It is the government’s resolve that CPSEs achieve scale, heft and strengthen their balance sheets," said Ajay Bodke, chief executive and chief portfolio manager at brokerage Prabhudas Lilladher Pvt. Ltd.
“We have seen consolidation happening in oil and gas, and the banking sector. It is just a continuation of that trend in the insurance sector," added Bodke.
In 2017, the government listed two state-owned insurers New India Assurance Co. Ltd and General Insurance Corp. of India on 13 November 2017 and 25 October 2017, respectively. These stocks are however, down 17.50% and 16.67% respectively from their offer price.
Analysts had flagged the stretched valuations of these initial public offerings, and the shares had slid post listing.
The Indian equity market’s largest institutional investor Life Insurance Corp. of India had bought 8.42% and 8.67% stakes, respectively in state-owned firms General Insurance Corp. of India and New India Assurance Co. during their IPOs.
The government last year created a so-called alternative mechanism or panel of ministers headed by Jaitley to decide on matters relating to terms and conditions of strategic sale—from calling for expressions of interest from potential buyers to inviting financial bids.
The new mechanism will empower the so-called core group of secretaries on disinvestment (CGD) to take policy decisions on procedural issues and to consider deviations which are necessary from time to time for effective implementation of cabinet decisions.
The government has set up an alternative mechanism with the same composition to decide on minority stake sales in CPSEs.