India is rethinking its divestment strategy from the earlier approach of setting divestment targets to meet its fiscal deficit. The focus now will be to unlock value. “ We had a very aggressive disinvestment target... We got a little short-term on the value we are unlocking... When we were doing aggressive sales, the price went down... Our motto was to raise revenue to meet the high divestment target,” a senior government official aware of the matter and who asked not to be identified listed out the ways that the process used to be conducted and the usual outcomes.
That's set to change with the full budget for 2024-25 unlikely to set a number to be achieved by way of selling stakes, entirely or in part, in public sector undertakings (PSUs), according to senior government sources.
“There won't be a disinvestment target this year—for the first time. We want to bring focus on minority shareholders,” said the person cited above.
The interim budget presented in February also did not have a separate target for divestment receipts.
The thinking in the official circles is that offloading the government's stake in companies will continue to happen and in fact will accelerate after the election. “IDBI (Bank) will be the first off the block. Everything is in place, there is a lot of interest, the slowdown is on the part of the government because of elections,” said another person in the know.
The government along with Life Insurance Corporation of India is selling nearly 61 per cent stake in IDBI Bank and had invited bids from buyers in October 2022.
The valuation of 61 listed companies, 12 public sector banks plus IDBI Bank (which is a development finance institution under the ownership of LIC and Government of India ) and three public sector insurance companies has grown from Rs 15 lakh crore in 2021 to Rs 60 lakh crore as of March 2024.
The government’s thinking now is to build company fundamentals before divesting its stake. The idea is to evaluate a company’s bottom line, top line and return on equity. Efficiency indicators have been brought in with a consistent dividend policy.
“It’s imperative to give dividends to shareholders. Profitability is key. Companies are not for retaining cash,” explained a source.
The government is also organising seminars for senior management and CEOs of PSUs. On May 17, the Capacity Building Commission will conduct a workshop to train the upper management on communication with analysts, giving media interviews and so on.
“There is performance and then there is perception,” said a senior government official.
The government will adopt a calibrated divestment strategy. As the official first quoted said, “Eggs will be harvested over a period of time. Our supply will be muted. Just because the market is good doesn’t mean we have to go full hog. Our strategy should be market-friendly. We cannot have an economist's strategy.”
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