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Modi govt met disinvestment target only because one public sector company bought another

Analysts say sale of govt’s shares in REC Ltd to the Power Finance Corporation is just an ‘eyewash’ because it doesn’t reduce its actual ownership.

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New Delhi: Once again, the government has resorted to selling off its stake in one public sector company to another in a last-minute bid to boost its disinvestment receipts.

Days before the end of the 2018-19 financial year, the state-owned Power Finance Corporation (PFC) approved the acquisition of the government’s 52.63 per cent shares in REC Ltd for Rs 14,500 crore, which will take the total receipts for this year above Rs 80,000 crore — the target set for this financial year.

Finance minister Arun Jaitley in a tweet said that the total disinvestment receipts touched Rs 85,000 crore. The details of the disinvestment exercise, however, has not yet been published.

Before this deal, disinvestment receipts stood at Rs 56,473.42 crore.

In the first three quarters of this financial year, the government had garnered just Rs 34,142.35 crore — less than 50 per cent of the target — but managed to raise Rs 22,331.07 crore in the last two months.

Analysts were quick to point out while the receipts figure has inched closer to the target, disinvestment has not brought down actual ownership of the government — the stated intent of the exercise.

“This is just an eyewash — money from one public sector behemoth goes into another and the government makes money, the purpose of disinvestment is lost,” said a senior analyst who did not wish to be identified.

Also read: India has met its disinvestment target only once in the last 10 years

Same story last year

Barring the last fiscal year, 2017-18, the government has been missing its disinvestment targets for the last 10 years. Last year, the central government managed to exceed the target of Rs 1,00,000 crore, touching Rs 1,00,056 crore.

A close look at the data, however, reveals that a substantial chunk of the accruals came from stake sale between central public sector enterprises (CPSE) and buybacks — a scheme which allows the company to repurchase a part of the outstanding shares.

Credit: DIPAM

For example, the government-owned Oil and Natural Gas Corporation (ONGC) bought out the central government’s entire 51 per cent stake in the Hindustan Petroleum Corporation (HPCL) for Rs 36,915 crore.

A study by Prime Database, a source for capital market information, revealed that 36.62 per cent of the disinvestment target last year came from CPSE-to-CPSE sales.

Also read: Disinvestment target met only once in last 10yrs: No takers or was Modi govt too ambitious?

Buybacks and ETF

The government primarily relied on buyback of shares and the exchange-traded funds (ETF) route for meeting its disinvestment targets.

This year, the government has raised Rs 17,000 crore through the CPSE ETF route, and about Rs 18,729 crore through the Bharat 22 ETF route. Another over Rs 8,000 crore was raised from buybacks.

However, a research paper prepared by policy think-tank Pahle India Foundation (PIF) said: “The buyback programme by public sector entities entails buying back shares by the government. This does not reduce the government shareholding in those CPSEs, it transfers money from the CPSE to government coffers.”

According to PIF, the challenges to disinvestment include the weak appetite to buy CPSE stocks, regular government interference in the functioning of the CPSEs, and their valuation.

Notwithstanding all this, while presenting the interim budget this year, railways and coal minister Piyush Goyal, who was acting as finance minister in the absence of Arun Jaitley, set the disinvestment target for the next financial year at Rs 90,000 crore.

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