Indian government set to miss fifth consecutive divestment target as challenges persist

The Indian government is facing difficulties in meeting its divestment goals for the fifth year in a row. Originally aiming to achieve ₹51,000 cr in the fiscal year 2024 (FY24), it has only managed to secure around ₹10,000 cr so far, which is just 20% of the set target. With upcoming elections and the Model Code of Conduct (MCC) on the horizon, there is limited room for significant divestment initiatives. CareEdge, a research firm, predicts a divestment of around ₹15,000 cr for FY24.

Some significant divestment plans, such as those involving IDBI Bank, BPCL, and Pawan Hans, are facing uncertainty. Slow progress in divesting from BPCL and obstacles in selling stakes of the Shipping Corporation of India contribute to the current shortfall. The expected ₹360 bn gap in non-debt capital receipts due to slow divestment progress might be covered by better-than-expected tax and non-tax revenues.

A survey by CareEdge shows that 47% of participants expect the FY25 divestment target to be below ₹40,000 cr. Additionally, 29% predict a target between ₹40,000-50,000 cr, 14% between ₹50,000-₹60,000 cr, and only 9% foresee a target higher than ₹60,000 cr.

In the ongoing fiscal year, ₹10,049 cr has been raised through the sale of minority stakes via Initial Public Offerings (IPOs) and Offer For Sale (OFS). However, significant privatisation plans involving BPCL, Shipping Corporation of India (SCI), and CONCOR have been delayed until after the general elections scheduled for April/May.

Several Central Public Sector Enterprises (CPSEs), including SCI, NMDC Steel Ltd, BEML, HLL Lifecare, and IDBI Bank, are preparing for strategic sales. Still, delays in processes like due diligence and the demerger of assets are hindering these transactions. For instance, IDBI Bank faces delays as potential bidders await security clearances and approvals from the government and Reserve Bank of India (RBI).

Currently, the Department of Investment and Public Asset Management (DIPAM) is processing around 11 transactions, but the privatisation of CPSEs and IDBI Bank may spill over to FY25. In the last budget (Feb 1, 2023), the government missed its divestment target for FY23, raising only ₹35,293.52 cr, which is 70% of the revised target.

More than half of the divestment proceeds came from the Life Insurance Corporation of India (LIC) IPO, where the government sold a 3.5% stake, raising ₹21,000 cr. Contributions from the privatisation of Air India and the share sale of ONGC also played a role. In FY22, the government missed both its original and revised targets, raising only ₹13,531 cr. Similar trends of missing divestment targets were observed in previous fiscal years, showcasing the ongoing challenges faced by the government in meeting its divestment goals.