India has been missing its disinvestment target for the last 10 years, barring 2017-18. With private players not showing enough appetite, the government has been forced to sell stakes in one PSU to another, leading to just change in ownership.
ThePrint asks: Disinvestment target met only once in last 10 years: No takers or was Modi govt too ambitious?
In India, disinvestment has political ramifications too
D.K. Joshi
Chief economist, Crisil
The government – irrespective of whether it is led by the UPA or the NDA – has underperformed on the disinvestment front. The disinvestment exercise needs to be definitely revamped and should be undertaken in a more systematic and time-bound manner. The government needs to think through this.
The exercise, once the target is fixed, should kick off right from the beginning of a financial year.
Last year, of course, we managed to exceed the disinvestment target. But look at how we did the numbers. Stakes in one Central Public Sector Enterprise (CPSE) were sold to another. That cannot be called disinvestment. The purpose is lost.
But having said that, let us understand that the exercise is not an easy one and there is generally no major appetite for the same. Take the example of Air India. The government did try selling the stakes in Air India. The exercise did not take off and finally, the plan had to be shelved. Carrying out a disinvestment exercise in India will always be time-consuming. There are political ramifications too.
It is also important to understand that disinvestment will not lead to any continuous source of revenue generation and we need to focus on pushing our tax revenues up.
Disinvestment a sensitive exercise and one cannot just keep an eye on targets
Ashwani Mahajan
National co-convener, Swadeshi Jagaran Manch
The NDA government has performed well on the disinvestment front. This is despite the government not meeting its targets, expect in the last financial year.
If you see the numbers, they are encouraging and this underscores the fact that the exercise has been undertaken in a well thought-out manner. I strongly believe that no targets should be set for disinvestment.
The government has always been keen on taking the equity route for loss-making PSUs and those that have been shut. This is the best formula and we feel it will eventually reap benefits. The NDA government has, in fact, even gone ahead with strategic disinvestment in a few cases.
Disinvestment is a sensitive and crucial exercise and you cannot just keep an eye on the targets and carry it out without any thought.
Our only objection was with regard to the disinvestment proposal for Air India. Air India is a national carrier and has a history. We feel it should be revamped and the government should focus on that.
Govt can sell shares of public sector firms at a discounted rate
Nirupama Soundararajan
Senior fellow & head of research, Pahle India Foundation
In India, Central Public Sector Enterprises (CPSEs) are known to be behemoth industries with questionable efficiency. Over the years, the focus of disinvestment has shifted from merely financing the fiscal deficit to improving corporate governance standards within CPSEs. Yet, disinvestment targets have never been met.
The government, while disinvesting any public sector entity, needs to evaluate if the investor benefits from the purchase. Investors look for profitable opportunities in markets. One will have to build brand value and make any stake sale attractive. Under present circumstances, even after disinvestment, there is no value creation.
The government must revisit its disinvestment strategies. At a recent BSE-PIF Seminar held on disinvestment, three excellent suggestions emerged. First, because the government is unable to run the CPSE effectively and create value, management should be handed over to a trust. These trusts will ensure that the real value of the CPSE is realised. They will have the freedom to divest the shares when their value goes up.
Second, the government could create a recurring disinvestment cycle whereby a random portfolio of different CPSEs is offloaded to the market on a specific date of every month. This way investors demand can be managed.
Third, the government could restart the practice where the CPSE shares are sold at a discount of say 5 per cent. In today’s context of subdued demand, this may help bring in retail investors by cashing in on the huge goodwill that CPSEs have. India’s disinvestment policy has to be more practical than ambitious.
Can LIC bailing out govt PSUs be called disinvestment at all?
Mahua Venkatesh
Associate editor, ThePrint
Every year, an ambitious disinvestment target is set by the government. This year, the target is a steep Rs 80,000 crore. We are already in the last quarter of the current financial year and what have we achieved so far? Rs 34,142.35 crore – less than 50 per cent of the target.
This year, the government took a bold decision to privatise the bleeding national carrier Air India by divesting 76 per cent stake besides management control. Despite this, the plan failed. It highlights the basic lacunae in the government’s disinvestment strategy. A company that has debt over Rs 48,000 crore will naturally have few takers. That apart, the government still would have 34 per cent stake and that is a substantial chunk.
Besides, if the government is serious about the disinvestment exercise, it should start with PSUs that are healthy notwithstanding political ramifications.
In the past, as appetite from private players weakened, another public sector behemoth—LIC—has been constantly stepping in to bail out the government’s disinvestment exercise. But can we call it disinvestment? One PSU exits while another enters.
And most importantly, it is difficult to set a target for disinvestment, you cannot predict market and market conditions.
Compiled by Mahua Venkatesh, associate editor at ThePrint. Follow her at @MahuaVenkatesh