Budget 2019: Rs 800 bn target! Disinvestment in public sector companies - a trump card for govt?

The table is set for the first biggest financial day for Indian citizens in 2019! Interim Finance Minister Piyush Goyal has gone through all the major agendas for the day with Prime Minister Narendra Modi in Parliament today. It needs to be noted that, a draft Budget will be presented today, whereas the session will continue till February 13, 2019 in Lok Sabha and Rajya Sabha. A full and final budget will take place when a ruling party is elected during general elections 2019. Apart from controlling the country’s fiscal deficit, expenditure and borrowings, the government also needs to raise its revenue and managing reforms, if any. Guess what! Disinvestment can be the major trump card for PM Modi government in boosting India's revenues to comfort levels. That is necessary to bolster confidence in the business community and investors around the world.  

Putting things in perspective were analysts at Kotak Institutional Equities. They said, “We expect the government to continue to focus on divestment of its stakes in various companies to bolster its overall revenues. While the government has garnered Rs 338 billion till December 1, 2018, the REC, BHEL, and NHPC transactions along with expected SUUTI sales should ensure meeting of the target of Rs 800 billion for FY2019.”

They added, “We note that the government has sufficient options to raise large amounts from divestments of its stakes in government and private companies. We expect the government to keep its divestment target at Rs 800 billion in FY2020E.”

On the other hand, analysts at Arihant Capital added, “Divestment pressure will remain as government falls short of Rs 45,857 cr in meeting disinvestment target in FY 2018-19, highlighting the challenges in relying on divestment as a sustained source of revenue.”

However, Arihant also explains that,  it is quite possible that government is likely to seek another Rs 80,000 cr in the next fiscal year FY2019-20, for which the government could accelerate stake sales in public sector banks and might seek special one-off dividend payments from RBI and government entities to achieve its target.

Thereby, disinvestment plays an important tool for government in their revenues apart from tax collections, revenue from public sector undertakings (PSUs) and RBI dividend.

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However, the Finance Minister Arun Jaitley boldly increased India’s disinvestment target for the fiscal year 2018-19 during the previous budget. This was fueled by a blockbuster performance in this section during fiscal 2017-18.

It is known that forget the disinvestment target, the government has not even managed to achieve half of its trajectory in Budget 2018, despite bringing many IPOs, buybacks, and Bharat ETF this year. With this, the government is seen to fall short of its disinvestment target. 

According to the data given by Department of Investment and Public Asset Management (DIPAM), so far only Rs 34,142.35 crore has been achieved via disinvestment which is just 42.66% of the overall budget target of Rs 80,000 crore. 

CLSA says, “Large disinvestment programmes (Rs1.8trn over FY18-19) and repeated off-balance sheet spending (c.Rs1.2trn over FY18-19) have created a high base effect of on-budget spending.”

In CLSA’s view, “The large disinvestment target has seen government adopt multiple measures such as creation of cross holdings in PSUs, selling stakes in several PSUs via ETFs, etc.”

CLSA says, “As such, mean reversion to better-quality fiscal will take time and FY20 could still see another Rs0.8-1.0trn disinvestment being targeted.”