Budget 2023: Disinvestment Target Would Be Optimistic Or Realistic

The contribution of divestment would be crucial in a situation, when the government needs funds to spend on infra projects along with to address the challenge of maintaining the fiscal deficit target

Disinvestment is an important component of the Budget. It comes under the head of capital receipts. It is a very tough task for any government to set an accurate disinvestment target. As in the last eight financial years, except in the financial year 2017-18 and 2018-19, the Budget target has never been achieved and it has been, except for FY19, been revised every year. The Budget estimate has been reduced six times, increased once in 2017-18 and left unchanged once in 2018-19.

The contribution of disinvestment would be very crucial in such a situation, when the government needs funds to spend on infrastructure projects to accelerate the development of the country along with to address the challenge of maintaining the target of fiscal deficit. However, the performance in terms of proceeds realisation of divestment in central public sector undertakings (CPSUs) in the current economic environment is not satisfactory.

Disinvestment in FY22-23

In the current financial year, the government is again set to miss the target of disinvestment for the fourth financial year in a row. In fact, even half of the budget target has not been realised till now. The government has, so far, raised only Rs 0.31 lakh crore against the budget estimate of Rs 0.65 lakh crore. Of that even 68 per cent of the actual realisation so far has come from the disinvestment of life insurance corporation of India. 

Now only two and a half months are left in this financial year 2022-23. However, as expected, if the government would be able to realise Rs 0.35 lakh crore from the sale of residual stake in Hindustan Zinc, it would not miss the disinvestment target for this fiscal.  Hitherto, the government has realised Rs 0.21 lakh crore from LIC, Rs 3,839 crore from the sale of Axis Bank shares held by the SUUTI, Rs 3,059 crore from the offer for sales of ONGC, Rs 2,724 crore from IRCTC, Rs 497 crore form GAIL, and Rs 472 crore form PPL.

The government has raised Rs 0.21 lakh crore from divestment of 3.5 per cent stake of LIC at Rs 949 per share. Actually, the government was expected to realise Rs 0.65-0.70 lakh crore from divestment of 5 per cent stake of LIC via initial public offering. However, later on, due to a non-favourable market, the issue size was reduced to 3.5 per cent. Despite this, it has been the biggest and successful IPO of the country so far.

Covid-19 and Disinvestment

The economy of the country has been in serious trouble and passing through a difficult phase. The recent most worrying situation was rising inflation that became a serious threat for the economy. However, the consumer price index has dropped to a 1-year low of 5.7 per cent in December 2022, but still, it is a threat. The main drivers for a steep rise in prices have been the impact of the Covid19 global pandemic, the Russian invasion of Ukraine resulting in disruption in the global supply chain and as a result rising crude oil prices.

This inflationary surge was not limited to India, it affected other countries too. The US Fed Reserve increased interest rate a number of times to curb the inflation which reached 9.1 per cent in June 2022. The result of this was that foreign portfolio investors (FPI) started pulling out investment from India. This affected not only the stock market, but also the forex market and the value of the INR decreased in comparison to the dollar.

The prevailing situation has greatly affected India’s divestment programme as well. In the financial year 2020-21, the government had fixed a disinvestment target of Rs 2.10 lakh crore that further revised to Rs 0.32 lakh crore. Though the actual realisation was Rs 0.38 lakh crore.

Government effort to accelerate disinvestment programme

The government has tried hard to streamline the disinvestment programme to fund its ambitious infrastructure project to revive demand and speed-up economic growth of the country. In this backdrop the government had announced a new Strategic Disinvestment Policy-2021 in the Budget speech for 2021-22. Under the policy, in the strategic sector, there will be a minimum presence of the CPSUs. The remaining CPSUs in the strategic sector and all non-strategic sector CPSUs would be privatized otherwise shall be closed.

But if we talk about actual realisation from disinvestment in CPSUs, then the efforts of the government seem to be in vain. In the financial year 2021-22 the actual realisation was Rs 0.14 lakh crore against the budget target of Rs 1.75 lakh core which was later reduced by 55 per cent to Rs 0.78 lakh crore. Only 18 per cent of revised target and 8 per cent of Budget target was realised as LIC IPO was postponed to FY23 to avoid stock market volatility. Apart from this, in the current financial 2022-23 year so far only 48 per cent of the amount has been realised.

In recent past, according to an article of Livemint, DIPAM came out with a suggestion that dividend of Rs 0.37 lakh crore form CPSUs be accounted as disinvestment collections and club it with divestment realisation of Rs 0.31 lakh crore to achieve the disinvestment target of Rs 0.65 lakh crore. Although this is a ridiculous suggestion because dividend is a revenue resource for the government and presently, it is not considered as disinvestment proceeds.

Optimistic vs realistic target

Now the question is what target should the government set for disinvestment for the financial year 2023-24? Will the Budget target be optimistic or the government will set a realistic target?  If we look at the divestment proceeds realisation in the last eight fiscal years, we find that the revised target has always been more accurate than the Budget target. The revised estimate has risen to the occasion except in 2019-20 and in the last fiscal year. In the year 2019-20 also about 77 per cent of the revised target and about 49 per cent of it in 2020-21 has been realised.

In the last eight financial years, the average Budget target was Rs 1.04 lakh crore, which was revised and reduced to Rs 0.57 Lakh crore on an average. In other words, the budget estimates for disinvestment have been reduced by about 45 per cent. Therefore, it can be said that the actual average realisation has been Rs 0.50 lakh crore against the Budget and revised target.

The Secretary of the Department of Investment and Public Asset Management once said in an interview with Reuters that the government’s focus should be on privatisation instead of chasing high disinvestment targets. As it leads to a fall in share prices of such enterprises. So, there is no sense in fixing a higher target that cannot be achieved.

Disinvestment target for FY23

The Budget for 2023-24 will be the last full budget for the present government and it is expected that the government will keep an elevated target rather than a realistic target. While the priority of the government will be to give a growth-oriented budget and address the challenge of fiscal mathematics, it will also have to make the Budget popular as it will have to go to the general election next year. For a popular Budget, the government will probably go towards the optimistic disinvestment target. The government can set a high disinvestment target for the financial year 2023-24 as some large asset-sales are in the pipeline and expected to realise the proceeds in the next fiscal year. 

Dr Vinay K Srivastava teaches at ITS Ghaziabad

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