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Business News/ Economy / Budget 2024: Govt likely to miss divestment target for the 5th time in FY24; only 20% achieved
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Budget 2024: Govt likely to miss divestment target for the 5th time in FY24; only 20% achieved

The Government of India is likely to miss its divestment target for the fifth year in a row. In the last Budget, the government had set a divestment target of ₹51,000 crore for FY24 and has garnered around ₹10,000 crore so far, which is just 20 percent of its original target.

The Government of India is likely to miss its divestment target for the fifth year in a row. In the last Budget, the government had set a divestment target of ₹51,000 crore for FY24 and has garnered around ₹10,000 crore so far, which is just 20 percent of its original target.Premium
The Government of India is likely to miss its divestment target for the fifth year in a row. In the last Budget, the government had set a divestment target of 51,000 crore for FY24 and has garnered around 10,000 crore so far, which is just 20 percent of its original target.

The Government of India is likely to miss its divestment target for the fifth year in a row. In the last Budget, the government had set a divestment target of 51,000 crore for FY24 and has garnered around 10,000 crore so far, through disinvestments so far, which is just 20 percent of its original target.

With the upcoming election and the imminent implementation of the Model Code of Conduct (MCC) just months away, there appears to be limited scope for advancement in big-ticket divestment initiatives. Consequently, CareEdge projects FY24 divestment at approximately 15,000 crore.

"The big-ticket divestment initially planned for this year involving IDBI Bank now appears uncertain. Previous attempts to divest from BPCL and Pawan Hans were unsuccessful, and stake sales in the Shipping Corporation of India are currently hindered by the demerger of land assets. The projected 360 billion shortfall in the non-debt capital receipts due to slow progress on divestment is expected to be covered by a better-than-budgeted performance of tax and non-tax revenues," it explained.

Read here: New Tax Regime: Should one continue to invest in tax saving instruments?

In a survey by CareEdge, it observed that after a likely miss of the divestment target this year, most participants, almost 47 percent of the survey participants, see the FY25 divestment target to remain below 40,000 crore. Meanwhile, 29 percent see an FY25 divestment target between 40,000-50,000 crore, 14 percent between 50,000- 60,000 crore and just 9 percent see the divestment target for FY25 higher than 60,000 crore.

In the current fiscal year, a total of 10,049 crore has been amassed through the sale of minority stakes via Initial Public Offerings (IPOs) and Offer For Sale (OFS). However, notable privatization initiatives, such as those involving Bharat Petroleum Corporation Ltd (BPCL), Shipping Corporation of India (SCI), and CONCOR, seem to have been deferred and are anticipated to take place after the general elections scheduled for April/May.

Read here: Budget 2024: Common man wishlist for FM Sitharaman

Several Central Public Sector Enterprises (CPSEs), including Shipping Corporation of India (SCI), NMDC Steel Ltd, BEML, HLL Lifecare, and IDBI Bank, are currently undergoing preparations for strategic sales in the ongoing fiscal year. However, the completion of these transactions is experiencing delays due to ongoing processes such as due diligence and the demerger of core and non-core assets for most of the CPSEs. The invitation for financial bids has been postponed as a result.

In the case of IDBI Bank, which received multiple Expressions of Interest (EoIs) in January 2023, progress has been hindered as potential bidders are awaiting security clearances and 'fit & proper' approvals from the government and the Reserve Bank of India (RBI), respectively.

In total, there are around 11 transactions that are being processed by DIPAM (Department of Investment and Public Asset Management) currently but the privatisation of all the CPSEs as well as IDBI Bank are likely to move over to the upcoming financial year FY25.

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In the last budget (Feb 1, 2023) as well, the Narendra Modi government missed its divestment target. The disinvestment target for FY23 was scaled down to 50,000 crore, from 65,000 crore earlier but the govt managed to raise only 35,293.52 crore in the previous financial year FY23, which is 54 percent of the original target and 70 percent of the revised target.

More than half of the proceeds raised so far from divestment came from the initial public offering of the Life Insurance Corporation of India (LIC), where the government sold a 3.5 percent stake at 949 a share, raising 21,000 crore. Apart from LIC, the privatisation of Air India and the share sale of ONGC also procured around 2,500-3,000 crore each.

Furthermore, in FY22, the government missed its original target as well as its revised target by a huge margin. The original divestment target for the previous financial year was 1.75 lakh crore, which was later reduced by 55 percent to 78,000 crore. However, the government was able to raise just 13,531 crore, only 18 percent of the revised target as the initial share sale of LIC was pushed to FY23 to avoid market volatility. This was the lowest mop-up after the disinvestment program was revived in FY10.

Read here: Budget 2024: Election influence likely but fiscal health to remain in focus

In FY21 too, the government missed its divestment target, raising 32,742 crore against the original target of 2.10 lakh crore. While, in FY20, the government mopped up around 50,000 crore against its original target of 90,000 crore.

Before FY22, the lowest disinvestment receipts were in FY12 at 14,000 crore against the target of 40,000 crore. Meanwhile, the highest divestment receipt for the government has been 1 lakh crore in FY18 against a target of 72,500 crore. A large chunk of this ( 36,915 crore) was due to the acquisition of HPCL by ONGC. Meanwhile, in 2018-19, the disinvestment mop-up stood at 84,972 crore against the Budget target of 80,000 crore.

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In 2016-17, the government had missed the budgeted disinvestment target. While the Budget had pegged the target at 56,500 crore, the government was able to mop up 46,247 crore. In 2015-16, the government had realised 23,996 crore from CPSE disinvestment, lower than the Budget target of 69,500 crore.

The other divestments that are likely to be completed in the upcoming financial year include those of IDBI Bank, Shipping Corporation, BEML, NMDC Steel and Pawan Hans.

The government has invited bids to sell its stake in IDBI Bank. However, the process will stretch well into the next financial year.

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Published: 23 Jan 2024, 12:38 PM IST
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