scorecardresearch
Budget 2021: LIC IPO in FY22 as government looks to resurrect poor disinvestment record

Budget 2021: LIC IPO in FY22 as government looks to resurrect poor disinvestment record

While the government has maintained for long it does not wish to be in business in sectors that are not of strategic importance, its track record of disinvestment is patchy at best

Key Highlights

  • In 2020-21, government missed its ambitious Rs 210,000 crore disinvestment target by nearly 85 per cent which put a strain on its overall finances
  • In the last decade, government has missed the target in 8 of the 10 years but remains steadfast on the road to privatisation
  • IPO of Life Insurance Corporation could be the game changer in 2021-22. Two PSU banks to be also privatised
  • Strategic disinvestment targets include BPCL, Air India, Shipping Corporation of India, Container Corporation of India, IDBI bank and Neelanchal Ispat Nigam Ltd

In a year when India's stock markets have hit new highs, the government has once again faltered to use the opportunity and monetise its assets. missing its ambitious Rs 210,000 crore target by a wide margin. During 2020-21, the government expects to rake in only Rs 32,000 crore, its lowest tally since 2014-15.

The determination to divest assets and garner revenue however, remains upbeat. For 2021-22, the target has been set for Rs 175,000 crore, 17 per cent lower than in 2020-21 but should the government be able to achieve it, it would represent an over five-fold increase over the current fiscal. To do that, it has lined up strategic divestments in a host of PSUs including BPCL, Shipping Corporation of India, Container Corporation of India, IDBI bank, Pawan Hans and Neelanchal Ispat Nigam Ltd. The biggest of the lot and a potential multi-bagger could be the IPO of Life Insurance Corporation.

"In spite of COVID-19, we have kept working towards strategic disinvestment. Other than IDBI Bank, we propose to take up the privatisation of two public sector banks and one general insurance company in the year 2021-22. This would require legislative amendments and I propose to introduce the amendments in this session itself," Finance Minister Nirmala Sitharaman said during her Budget speech. "In 2021-22 we would also bring the IPO of LIC for which I am bringing the requisite amendments in this session itself."

While the government has maintained for long it does not wish to be in business in sectors that are not of strategic importance, its track record of disinvestment is patchy at best. Since 2010-11, it has missed its annual disinvestment target each year except two years -- 2017-18 and 2018-19. The success in those two years prompted it to set even higher targets but neither did it achieve them, nor did it even come close.

"In the AtmaNirbhar Package, I had announced that we will come out with a policy of strategic disinvestment of public sector enterprises. I am happy to inform the House that the government has approved the said policy. The policy provides a clear roadmap for disinvestment in all non-strategic and strategic sectors. We have kept four areas that are strategic where bare minimum CPSEs will be maintained and rest privatised," Sitharaman said during her speech on Monday. "In the remaining sectors all CPSEs will be privatised. To fast forward the disinvestment policy, I am asking NITI [Aayog] to work out on the next list of central public sector companies that would be taken up for strategic disinvestment."

In 2021-22, it will be imperative for this strategy to bear fruit. The effort to fight the pandemic is showing on the state of government finances with fiscal deficit at a high 9.5 per cent in 2020-21. For the next financial year, it has targeted a deficit of 6.8 per cent but increased its capex allocation by 34.5 per cent to Rs 5.54 lakh crore.

Mindful that it cannot afford to miss the target again, it has planned to get the states on board.

"To similarly incentivise states to take to disinvestment of their public sector companies, we will work out an incentive package of Central Funds for States. Idle assets will not contribute to AtmaNirbhar Bharat. The non-core assets largely consist of surplus land with government ministries/departments and public sector enterprises," Sitharaman said. "Monetising of land can either be by way of direct sale or concession or by similar means. This requires special abilities and for this purpose, I propose to use a Special Purpose Vehicle in the form of a company that would carry out this activity."

"In order to ensure timely completion of closure of sick or loss making CPSEs, we will introduce a revised mechanism that will ensure timely closure of such units," she added.

Some of the announcements are not new and monetising non-core assets and land have been proposed and discussed before. The sense of urgency however, is palpable.

"Given the need to garner more funds to meet the social and economic needs of the country, the government has shown commitment to augment resources through several bold and strategic measures. The disinvestment agenda has been clearly defined," says Uday Shankar, president, Federation of Indian Chambers of Commerce and Industry (FICCI). "Also, the plan to monetise the land banks has been in discussions for a long time but it was only in this budget we saw the government showing its resolve to go ahead with the plan."

Also Read: Interest on EPF contribution above Rs 2.5 lakh to be taxable -- what it means for you

Also Read: Budget 2021: Centre sees Rs 5 lakh crore shortfall in tax revenue in FY21

Also Read: Budget 2021: Imported alcohol to attract 100% farm cess