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Home / Economy / The reasons behind the slow disinvestment pace

The government aims to earn 65,000 crore through the sale of its stakes in various central public sector enterprises (CPSEs) in FY23. However, privatization is still on the slow track. Mint examines the reasons:

What is the Centre’s disinvestment plan?

Under its Public Sector Enterprise (PSE) policy, the government plans to open all public sector units (PSUs) for private investment, fully exit sectors it considers nonstrategic, and keep at least one PSU in sectors it considers strategic. Several profit-making enterprises including Bharat Petroleum Corp. of India (BPCL), Shipping Corp. of India, HLL Ltd, BEML Ltd, Projects & Development India Ltd, Ferro Scrap Nigam Ltd are in line for privatization. The government also sells equity through initial public offerings (IPOs), follow-on public offerings (FPOs), or offer for sale of listed entities.

What is responsible for these delays?

The covid-19 pandemic posed several hurdles to the government’s disinvestment plans. Strategic sales stalled over FY21 and FY22 when India saw three waves of the pandemic, largely because potential investors were unable to physically inspect the assets, conduct due diligence and submit bids. Disinvestment has also faced opposition from employees fearful of job losses. Several state governments have opposed privatization as well. State governments and state or central-owned entities have been barred from bidding for these PSEs, but they have frequently sought to bid for them.

Asset sales
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Asset sales

How long could it take for the plan to pick up pace?

With covid-19 cases declining, some of the stalled strategic sales have made progress. In some cases, the Centre had to sweeten the deal. While offering better terms to potential investors adds a couple of quarters to the timeline of the asset sale process, resolving states’ concerns and other issues such as demerger of non-core assets can also take some months.

How important is disinvestment?

Disinvestment is a strategy for the government to reduce its fiscal burden and raise money to meet the needs of investments towards creating value for the public, which can be in the form of creating infrastructure or towards welfare schemes. Disinvestment is also seen as a way to unlock the value of under-performing assets. Thus, through the privatization of some PSEs, the Centre can seek private sector investments to turn around loss-making or under-performing units. This, in turn, helps in creating further employment creation.

What if the Centre misses the targets?

The government has rarely met targets set for disinvestment over the past several years, putting pressure on the government’s plans to balance out the fiscal deficit. For the pandemic-hit fiscal years—FY21 and FY22—the government fell far behind achieving its targets with 32,845 crore achieved in FY21 against target of 2.1 trillion, and 13,530 crore achieved against a target of 1.75 trillion, which was later revised downwards to 78,000 crore. For FY23, it has rationalized the disinvestment target to 65,000 crore

 

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