Budget 2023 will likely set a very conservative target for divestment and defer privatisation of banks and insurance companies a year ahead of general elections, government sources said.
Prime Minister Narendra Modi’s government has stepped into election gear and policies that may possibly antagonise certain sections of the electorate will not find a mention in the budget. The government’s aggressive divestment and privatisation agenda will also take a back seat, people aware of the situation told Moneycontrol.
“Divestment pool is shrinking; from 2014 onwards, nearly Rs 4.5 lakh crore has been divested. The government cannot go below 51 percent (of the shareholding of a public sector company) unless there is privatisation. And handing over control of big companies is not on the cards,” said one of the people.
The residual companies that are yet to be divested are largely in the small and mid-cap space. “It’s not easy to divest equity in these companies, it can lead to a collapse of stock prices,” added the person cited above.
The Centre had proposed privatisation of two public sector banks and one general insurance company in the 2021-22 budget and unveiled a public sector enterprise policy aimed at reducing the presence of government in running businesses.
But bank privatisation too, in all likelihood, will be put on the back burner. Officials say that the focus now is to deliver on divestments that are underway, with IDBI Bank’s sale being a big priority.
The government has extended the date for submission of an Expression of Interest for IDBI bank to January 7 from December 16. The government’s plan is to sell 30.48 percent of its stake and Life Insurance Corporation of India’s 30.24 percent stake and give away management control.
On May 26, the government dropped its plans to divest its stake in Bharat Sanchar Nigam Limited, citing the impact of COVID-19 and geopolitical conditions that had impacted energy prices.
For the divestment of its stake in Rashtriya Ispat Nigam Limited (RINL), the government is facing stiff pushback from the unions. In the case of HLL Life Care, there is tremendous opposition from the Kerala government.
The current fiscal year’s divestment agenda included RINL, Bharat Petroleum Company Limited, and the initial public offerings (IPOs) of Life Insurance Corporation of India and helicopter operator Pawan Hans. It set a lower target of Rs 65,000 crore for 2022-23, down from the revised estimate of Rs 78,000 crore for 2021-22 – which was revised down from Rs 1. 75 lakh crore.
There is a clear shift in the tonality of the government that had made minimum government and maximum governance one of its political planks and has often said that the government has no business in being in business.
In an interview with ANI News Agency in February this year- PM Modi said: " The government's job is to care for the poor, ensure food, toilets, houses, and supply of clean drinking water and has no business to be in business."
But towards the end of the year, the finance minister highlighted BSNL's bailout by the government as one of its achievements. Responding to the opposition’s charge that the government had ignored BSNL, Sitharaman said in Parliament on December 14: “First thing the Prime Minister did after coming to power in 2019 was to sanction Rs 54,021 crore for BSNL. ..BSNL was on the verge of death.. PM Modi revived it...now through supplementary grants I am giving Rs 60,575 crore .. now BSNL gets its due recognition."
“For nearly two decades under the UPA (United Progressive Alliance) there was no disinvestment, in some cases, there has been a legislation change, there was no demerger experience. there is a realisation now that divestment is a grind,” said an official.
A grind that clearly the government wants to steer clear of in a year before it goes to the polls and presents its last full budget.