Banking on divestment

Finance Minister Arun Jaitley does not seem to be fazed by past failures to achieve targets given that he has projected capital receipts of ₹69,500 crore from disinvestment. This includes ₹41,000 crore from stake sales in both profitable and loss-making PSUs.

But a new head in the Receipt Budget for 2015-16 indicates that another ₹28,500 crore is proposed to be raised through “strategic divestment”. Strategic disinvestment is akin to the sale of Hindustan Zinc and Balco to Vedanta by the previous NDA regime. Typically, PSU disinvestments have seen minor stake sales. Market experts say that when you sell to a strategic investor, he’s looking for control.

The Government sees disinvestment as a major source of revenue, after tax collections, to finance the fiscal deficit. It has lined up a slew of companies for possible disinvestment, including Indian Oil Corporation, National Mineral Development Corporation, BHEL and Nalco.

Divestment is also a pressing need in light of listing norms that stipulate a minimum public shareholding of 25 per cent. The major PSUs where the Government holding is more than 75 per cent include Coal India, NHPC, NMDC and SJVN. The Government’s stake is about 90 per cent in companies such as MMTC, Hindustan Copper, HMT, Neyveli Lignite and STC.

Financing the fiscal deficit projections in the Budget entails the Government to stick to its revenue targets. There may not be a dearth of companies to divest in, but market conditions have not been conducive. Whether the Government can hit the disinvestment target therefore remains a moot point.