It was February 1, 2020. As part of her budget, Finance Minister Nirmala Sitharaman announced the highest-ever divestment target of Rs 2.1 lakh crore, Rs 1.1 lakh crore more than the highest achieved divestment receipt of Rs 1 lakh crore in 2017-18. This was the time when the COVID-19 pandemic had just come to Indian shores through travellers returning from China and Europe. The nationwide lockdown was still nearly two months away.
Even the highly ambitious target for 2020-21 was considered achievable. Sitharaman had announced the planned initial public offering (IPO) of public sector behemoth Life Insurance Corporation of India. The cabinet had also cleared the privatisation of Bharat Petroleum, Container Corp and Shipping Corp in November 2019. These, along with Air India, were expected to be completed in the current financial year.
That did not happen, and the reasons are well documented. Investors and potential buyers around the globe went into a mode of saving their financial firepower, as the pandemic crippled economies, including India.
Nearly a year later, the Finance Minister is again expected to announce a massive divestment target, with the same five companies (four privatisation and one mega-IPO) expected to form a bulk of the plans.
Privatisation
When Prime Minister Narendra Modi came to power in 2014, he had made it clear that his administration would be pro-privatisation, in line with most economic right of centre governments around the world. It has been six years and the only sales of state-owned companies that have taken place at that time have been to other state-owned companies.
To be fair, the time taken to come up with a comprehensive privatisation plan is understandable. Governments, whether centre or states, are loath to let go of their PSUs and line ministries consider the PSUs their crown jewels or private fiefdom, depending on the way you look at it.
Officials from Niti Aayog and the Department of Investment and Public Asset Management, the two departments most deeply involved in the divestment process, admit to the long and sometimes difficult negotiations that take place to convince a ministry that their PSU will be privatised. The deciding factor has been the unwavering support for privatisation at PMO.
DIPAM has already received expressions of interest for Air India and BPCL, and the government seems confident that it can close both the deals in the first half of the coming year. Same goes for Shipping Corp, whose EOIs have been invited recently. Only Concor’s EOI is yet to be put into place. The centre has also revived the privatisation plans of Pawan Hans and will also put on the block Nilanchal Ispat Nigam Ltd.
Market Offerings
As a sustained bull run continued in the Indian markets the past few months, the government was criticised by notable economists, including former Reserve Bank of India Governor Raghuram Rajan. Rajan said earlier this month that given the levels markets were at, the centre should go for more share sales.
In January itself, the centre has carried out the IPO of IRFC Ltd and offer for sale for SAIL Ltd. Other IPOs and OFSs being planned for the remainder of this fiscal year and the next fiscal year include Rashtriya Chemicals and Fertilizers, RVNL, BEML Ltd, Midhani Ltd, Telecommunications Consultants India Ltd, among others.
The biggest, however, will be the IPO of LIC Ltd. The centre has appointed an actuary who will calculate the valuation and implied book value of the insurance giant. Given the size of the company and complexity of its holdings, it is a process that the government does not expect to be completed before the second quarter of 2021-22.
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