The public sector disinvestment programme has met its ambitious targets for the second year.
But the Centre has resorted to multiple shortcuts that undermine the basic objectives of disinvestment.
What is the new development?
The government, in the Union Budget for 2018-19, fixed for itself a disinvestment target of Rs 800-billion.
Disinvestments had raised only Rs. 56,473 crore by end-February 2019.
But the government managed to end the Financial Year 2018-19 with Rs. 85,000 crore from disinvestments.
The government making it above the disinvestment target is certainly good news for the fiscal condition.
Notably, the Centre has been grappling with excess expenditure.
So an overflowing disinvestment kitty certainly helps restrain the deficit number.
What were the modes adopted?
Of the total proceeds of Rs. 85,000 crore, only about two-thirds has been contributed by actual dilution of the Centre’s ownership stakes in PSUs.
This has been achieved through Exchange Traded Funds (ETFs), IPOs and offers for sale.
This has been liberally supplemented by requiring capital-intensive PSUs such as ONGC, IOC and BHEL to announce share buybacks.
This has supported the disinvestment figure by about Rs. 10,000 crore.
In a last-minute effort to bridge the shortfall in the disinvestment target, the Centre has also brokered the transfer of its controlling stake in REC to PFC to raise Rs. 14,500 crore.
[REC - Rural Electrification Corporation, PFC - Power Finance Corporation]
What are the concerns?
In a haste to showcase a healthy fund-raise, the government has resorted to multiple shortcuts in the disinvestment process.
It has compromised both the long-term interests of profitable PSUs, and the basic objectives of the disinvestment programme.
It is contentious if buybacks can even be counted as disinvestment as there has been no material change in the ownership of these PSUs.
To deal with the ailing Air India, the government has put through a couple of strategic sales too.
Here, it has opted for deals with pre-decided suitors, instead of open auctions to identify the best acquirers.
Also, REC and PFC are both financiers with highly leveraged balance sheets who have been hit hard by India’s power sector distress.
There are worries that a combination of these two firms may not improve their borrowing capacity.
Moreover, it may, in fact, prompt institutional investors to curtail their aggregate exposure.
Such forced inter-PSU deals are justified on the grounds that they unlock better efficiencies and synergies.
But such benefits often remain on paper due to turf wars and integration issues.
What does this imply?
When it comes to the public sector disinvestment programme in India, the means are far more important than the ends.
Of the various methods experimented by the government for disinvestment, the ETF route has proved the most successful.
