How do you rate the disinvestment process and how important it is from the fiscal management point of view?

Rating is very subjective, but I would give it a 3.

The aggregate capital receipts from disinvestment or strategic divestment have constituted about 2 per cent of the Central government’s non-debt revenue and capital receipts during the last twenty-five years. For example, the disinvestment receipts during this period have a little over ₹5-lakh crore, i.e., about ₹20,000 crore per year.

Sometimes, these are not even true disinvestments that involve the sale of a PSU to a private sector firm. For example, ONGC bought HPCL shares worth ₹36,000 crore from GOI during 2018. In a case like this, the divestment allows the fiscal deficit to be lower, as the debt shifts to a public sector firm. It does nothing more than that.


Has disinvestment lost its steam?

We do not have much to divest at this stage, as some of the PSUs have not been doing well, e.g., BHEL, BSNL, etc. So was the case with PSBs till a couple of years ago. At this stage, the valuations for some of the large PSUs are stretched. The question, therefore, is which of our business families have the ability to raise equity to finance these large corporations or the ability to raise large amount of debt? Many of these business families also do not have the management bandwidth to manage large corporations.

PSB valuations are close to being fair, but the government has not demonstrated the courage to make the decision to divest, even though it was budgeting nearly a lakh of crores as proceeds from sale of PSBs. The government once again used the good old trick – off-loading IDBI Bank to LIC.

It is also likely that the government is seeing the PSUs and PSBs as a political instrument that can time pricing and project investment decisions to election cycles.


What is the road ahead for disinvestment including strategic disinvestment?

I do not expect much progress on genuine disinvestment for the following reasons: Global firms are unlikely to be interested in investing in areas where the political influence continues to be high -- energy, banking, telecom, etc. Since the most valuable firms are in the conventional energy sector, it is unlikely that any global financial or strategic investors would put their money when the sector is transitioning from fossil fuels to green sources of energy.

I also expect that the government will hesitate to create private sector monopolies by handing over PSUs at poor valuations to Indian business families, given the discussion that is taking place around financing of political parties through electoral bonds.

Finally, it makes limited economic sense to privatize at a stage when we need additional private sector capex to accelerate economic growth. A mere exchange of money from the private sector to public sector for balancing government books or show that we are privatizing to bring efficiency is of limited value to the country.