1. Budget 2024: All you need to know about government’s divestment goal

Budget 2024: All you need to know about government’s divestment goal

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4 min read • Updated: January 25, 2024, 4:54 PM

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Summary

As reports suggest the government is likely to miss the disinvestment target for the fifth year in a row, the announcements on disinvestment will be keenly watched in Interim Budget 2024.

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In the last Budget, the divestment target for FY23 was reduced to ₹50,000 crore, from ₹65,000 crore earlier.

Mumbai, January 25: The announcements on disinvestment will be in focus during the presentation of Union Budget 2024 on February 1. This seems evident as several reports suggest that the government is likely to lower the divestment target for FY 2024-25.

The experts are curious to see the government’s moves on disinvestment in the Interim Budget, especially due to the massive shortfall in the ambitious target for the current fiscal. In FY24, the government had set a disinvestment goal of ₹51,000 crore. However, it has only realised one-fifth of the target at ₹10,050 crore so far in the current fiscal.

In an election year, it could be a tight-rope walk for Finance Minister Nirmala Sitharaman to make big-ticket divestment announcements in public sector entities. Before delving deep into what could be in store on the disinvestment front in Interim Budget 2024, let’s first take a look at disinvestment.

What is disinvestment?

Divestment is like a strategic financial makeover where a company or a government decides to sell off assets or dilute stake fully or in parts. Companies often divest to streamline their businesses. Similarly, governments too are known to divest their stakes in public sector entities to generate revenue. Divestment could be a savvy move to raise some extra funds. The central government sells its stake in state-owned entities to fund new projects, or to put that money into more welfare schemes.

Disinvestment, or divestment, can be of various types. In some cases, the government may choose to hand over complete control of its assets. There are also two other categories: minority divestment and majority divestment. In a minority stake sale the government retains 51% or more shareholding in the asset or entity. Majority divestment is just the reverse. Here, the government offloads a majority stake (51% or more), but not entirely.

The Finance Ministry has a separate department for undertaking disinvestment-related procedures called the Department of Investment and Public Asset Management (DIPAM).

What to expect on divestment in Budget 2024

Looking at the government’s ambitious privatisation goals in the past, a few reports suggest that the Interim Budget is likely to have some provisions to take forward the divestment exercise stuck in the middle for a few public sector undertakings (PSUs). The final decision on the receipts from disinvestment is likely to be spelled out in the upcoming full Budget, expected to be presented in July after the Lok Sabha elections.

A report by business analytics firm CareEdge projects in FY24 divestment could reach approximately ₹15,000 crore. The government is likely to miss the disinvestment target for the fifth year in a row.

According to experts, the government is expected to revise the disinvestment goals in the upcoming Interim Budget, especially considering the current shortfall. Major privatisation initiatives involving Bharat Petroleum Corporation Ltd (BPCL), Shipping Corporation of India (SCI), IDBI Bank and CONCOR have either deferred or stuck in different stages. On the other hand, stake sales in PSUs like NMDC Steel Ltd, BEML and HLL Lifecare are in a preparatory stage. Similarly, the stake sale in Pawan Hans Limited was scrapped in July 2023.

According to experts, the ongoing geopolitical problems, especially the Israel-Hamas crisis, could further delay India's divestment plans for this fiscal year. Over the past 3 decades, different governments have only managed to meet their annual disinvestment goals only 6 times. The BJP-led government has also not been able to meet the disinvestment target in the last five years. In the last Budget, the divestment target for FY23 was reduced to ₹50,000 crore, from ₹65,000 crore earlier. The government could only garner ₹35,293.52 crore. In FY22, the government missed its privatisation goal as well. The government could raise only ₹13,531 crore out of the aimed ₹78,000 crore, which was the revised target compared to the original estimate of ₹1.75 lakh crore.

Looking ahead to the Union Budget, reports suggest that the divestment goal might hit a nine-year low. And in an election year, the upcoming budget will be closely watched as the government is expected to take a path of fiscal consolidation.