PremiumSales and auctions of these shares in tranches, or through OFS, provide a relatively easy opportunity to raise a neat sum and narrow the government’s revenue-expenditure gap. A quick back-of-the-envelope calculation shows that ITC shares owned by SUUTI alone could fetch over ₹20,000 crore
Equity investors enjoyed a good year in 2021, with the economic recovery providing a momentum for stock markets. That isn’t often the case for government which over the past decade has watched private investors cash out while ending up consistently missing its annual targets for disinvestment and revenue maximisation.
It is the time of the year when officials scramble to make good the fiscal hole, as the finance minister prepares to present the annual union budget in Parliament. After the sale of Air India to the Tatas, reports suggest that the government is striving to proceed on past big-bang disinvestment announcements: oil refining company, Bharat Petroleum Corp. Ltd., and the country's largest insurer Life Insurance Corp. of India’s initial public offering.
Yet, even as the government pushes ahead, it is difficult to grasp the reasons for it moving so hesitantly on plucking the low-hanging fruits. Those are the shares of cigarette producer, ITC, Axis Bank, Larsen & Tubro and a few other firms such as depository, NSDL, Stock Holding Corp. of India, North Eastern Development Finance Corp. warehoused by the Specified Undertaking of UTI or SUUTI, that the government controls after its failed mutual fund, UTI’s, split. The government was forced in 2002 -03 to resort to this measure to mitigate the loss of millions of unitholders of what was India's largest mutual fund then UTI collapsed. This happened after the true value of its net asset value or NAV became public forcing the government to fiscally bail out investors.
Sales and auctions of these shares in tranches, or through offer for sale, provide a relatively easy opportunity to raise a neat sum and narrow the gap between the government’s revenue and expenditure. A quick back-of-the-envelope calculation shows that ITC shares owned by SUUTI alone could fetch the exchequer over ₹20,000 crore.
It has been almost two decades since these shares, which were originally acquired by UTI, were passed on to the government undertaking. The government has progressively sold off its holdings in Axis Bank, especially over the last five years, as part of its disinvestment programme. Yet, it has held on far longer to its holding of over 7% in ITC. There’s potential risk of an erosion in the value of its holdings here because of growing concerns of influential investors guided by environmental, social and governance or ESG norms. The old bogey of a hostile foreign predator controlling the Indian cigarette company by buying a sizeable chunk through disinvestment should be buried, if that’s what’s holding back the government.
Over the market deals, exchange traded funds and IPOs are a far better and operationally easier route to raise revenues quickly for the government rather than strategic disinvestment. The other method to monetise public and operating infrastructure assets, the National Monetisation Pipeline or NMP, is at best a medium- or long-term bet. And that too if political economy constraints don’t prove to be too binding. All these helps build up the case for quickly realising value for the blue-chip stocks held by SUUTI and to wind down the undertaking designed originally as a medium-term resolution plan. That SUUTI may warehouse the government's holding of 35.8 % in telecom operator, Vodafone after conversion of interest dues into equity still won't justify prolonging the operations of the undertaking in perpetuity.
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