Government sets ₹2.1 trillion disinvestment target

The disinvestment target for FY21 includes ₹90,000 crore to be raised from an initial public offer in Life Insurance Corp. of India (LIC) and a stake sale in IDBI Bank. The amount planned to be mobilized from the stake sale next fiscal works out to more than half of the government’s non-debt capital receipts of ₹3.85 trillion.

The aggressive disinvestment target is also the basis for the government’s hope that it will be able to contain its fiscal deficit at 3.5% of gross domestic product (GDP) in FY21. It had to let its fiscal deficit slip from 3.3% estimated in the budget presented last July to 3.8% of the GDP in the revised estimate presented on Saturday.

The crushing mandate that the Modi administration received last year gives it the political capital to go ahead with an aggressive disinvestment programme. The finance minister said on Saturday that officials have done extensive work on disinvestment this fiscal year, which is likely to yield results in the coming months.

In the current financial year, the government lowered its disinvestment target to ₹65,000 crore from the budget estimate of ₹1.05 trillion. The IDBI stake will be offered to private, retail, and institutional investors through the stock exchange, she said.

“Listing of companies on stock exchanges disciplines a company and provides access to financial markets and unlocks its value. It also gives opportunity for retail investors to participate in the wealth so created. The government now proposes to sell a part of its holding in LIC by way of initial public offering," said the minister. Finance secretary Rajiv Kumar said listing the institution will help in discovery of its valuation. Last year, the government had approved selling its controlling stake in IDBI Bank to LIC, which is fully government-owned. The Centre now holds 47.11% in IDBI Bank.

Market watchers said listing of LIC will be a milestone in the financial markets.

“LIC is the country’s largest financial behemoth and its IPO will be of epic proportions, as it is a household name, as compared to other private insurers. This will also chart a new chapter for LIC, which has recently been bailing out most cash-strapped PSUs," said Shailaja Lall, partner, Shardul Amarchand Mangaldas and Co., a law firm. Disinvestment secretary Tuhin Kanta Pandey said that the government has lined up several transactions that will be executed in the coming months.

The Modi administration has been bullish on privatizing loss-making companies, such as Air India, while other companies could go for strategic disinvestment or get listed to diversify ownership.

The Centre is expected to divest stakes in Air India, Bharat Petroleum Corp. Ltd (BPCL), Container Corp. of India Ltd (Concor) and Shipping Corp. of India Ltd (SCI) soon. It has been able to meet its disinvestment target only twice in the last eight years.

The government plans to privatize Air India by selling its 100% ownership in the airline, for which it invited expressions of interest earlier this month.

Desperate to get the ailing company off its balance sheet, the government reworked the eligibility criteria to let even domestic airlines with negative net-worth to bid for the national carrier, in a consortium.

The government is also keen on consolidating central public sector entities in the power sector by selling its entire stake of 74.23% in Tehri Hydro Development Corp. and its 100% stake in North Eastern Electric Power Corp. Ltd to NTPC Ltd.

In November, the government had cleared a plan to reduce its stake in certain state-run enterprises to under 51% on a case-to-case basis.

As on 31 March 2018, there were 339 central public sector enterprises with a total paid-up capital of ₹2.5 trillion, and reserves and surpluses of ₹9.42 trillion.

The aggressive stake sale plan also comes against the backdrop of declining tax collections and a sharp deceleration in the economy that the government is attempting to revive.

The stake sale of IDBI and the proposed listing of LIC will enable disclosure of their investment and loan portfolios and better governance, with greater transparency and accountability, said L. Viswanathan, partner, Cyril Amarchand Mangaldas.