BackArun Jaitley shows the way for PSU reforms in Budget 2017
In budget, finance minister Arun Jaitley puts focus on ETFs as vehicles for divestment of PSU stakes
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Finance minister Arun Jaitley on Wednesday placed a focus on exchange-traded funds (ETF) as a vehicle for divestment of stakes in state-owned companies.
In addition, the government will put in place a revised mechanism to ensure time-bound listing of central public sector enterprises (CPSEs) on stock exchanges.
The National Democratic Alliance (NDA) government also articulated its intent to streamline operations across public sector units by announcing the creation of an energy behemoth by merging various public sector firms in the oil and gas sector.
India has 298 central public sector CPSEs of which 235 are operational.
“We see opportunities to strengthen our CPSEs through consolidation, mergers and acquisitions. By these methods, the CPSEs can be integrated across the value chain of an industry. It will give them capacity to bear higher risks, avail economies of scale, take higher investment decisions and create more value for the stakeholders," Jaitley said in his budget speech.
The finance ministry has made an allocation of Rs1.03 trillion as equity support and Rs1.58 trillion as loan for its CPSEs in 2017-18.
“Our ETF, comprising shares of 10 CPSEs, has received overwhelming response in the recent Further Fund Offering (FFO). We will continue to use ETF as a vehicle for further disinvestment of shares," said Jaitley.
ETFs are the fastest-growing asset class in the world. As compared to other mutual fund schemes, ETFs carry lower expense ratios due to lower portfolio management, trading and operational expenses.
The CPSE ETF was launched on 18 March 2014, and comprises 10 firms: Oil and Natural Gas Corp. Ltd, GAIL (India) Ltd, Coal India Ltd, Rural Electrification Corp. Ltd, Oil India Ltd, Indian Oil Corp. Ltd, Power Finance Corp. Ltd, Container Corp. of India Ltd, Bharat Electronics Ltd and Engineers India Ltd.
“Accordingly, a new ETF with diversified CPSE stocks and other government holdings will be launched in 2017-18," added Jaitley.
Mint had reported on 11 January that the department of investment and public asset management was starting preparations for launching a new ETF comprising shares of listed CPSEs and some of the stocks of Specified Undertaking of Unit Trust of India (SUUTI) such as ITC Ltd, Larsen and Toubro Ltd (L&T) and Axis Bank Ltd.
Individual investors can invest a minimum of Rs5,000 in the CPSE ETF, while the maximum is Rs10 lakh. Non-institutional investors and qualified institutional buyers can invest a minimum amount of Rs10 lakh.
“Listing of public sector enterprises will foster greater public accountability and unlock the true value of these companies. The government will put in place a revised mechanism and procedure to ensure time bound listing of identified CPSEs on stock exchanges," Jaitley added.
As part of the strategy, Indian Railways will also list its subsidiaries—Indian Railway Catering and Tourism Corp., Indian Railway Finance Corp. and Ircon International Ltd.
Experts say the listing of CPSEs is the right way ahead to improve transparency.
“Listing is a very good option because it heralds layers of oversight mechanism such as Securities and Exchange Board of India, stock exchanges and investor interest research," said Mohammad Haleem Khan, a former disinvestment secretary.
The government aims to raise Rs72,500 crore through disinvestment of CPSEs.
The NDA government had set a disinvestment target of Rs56,500 crore for the current financial year. Of this it has been able to garner Rs45,500 crore.
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