Budget 2024: Finance Ministry to assess FY24 disinvestment this week

Budget 2024 :The ministry is expecting the receipt of dividends from non-financial central public sector enterprises (CPSEs) to make up partially for the disinvestment shortfall this year.

The Finance Ministry is likely to hold a meeting this week to assess the revised estimate for disinvestment for FY24 to bring it to a “reasonable level” in view of no strategic sale of CPSEs this year and the department relying solely on OFS (offer for sale) and IPO (initial public offer) instruments, which have led to Rs 10,051.73 crore proceeds so far. The dividends from CPSEs, however, have been good which will partially make up for the shortfall, a senior government official said.

The Budget had estimated Rs 51,000 crore from disinvestment for FY24.

“The government will have to revise the disinvestment target in the interim Budget 2024. The Finance Ministry will have to bring the disinvestment revised estimate (RE) to a reasonable level. The assessment meeting is going to be held this week,” the official told Moneycontrol.

The  Budget 2024-25 committee will also decide the estimated target for disinvestment for FY25, which usually happens just 2-3 days before the printing of the document. All government ministry secretaries are a part of the Budget 2024 committee.

However, the ministry is expecting the receipt of dividends from non-financial central public sector enterprises (CPSEs) to make up partially for the disinvestment shortfall this year. The budget estimate of Rs 43,000 crore from CPSE dividends has already been met with one quarter (January-March) still left in this fiscal. The current CPSE dividend receipts are at Rs 43,843 crore.

“DIPAM (Department of Investment and Public Asset Management) is getting good dividends from CPSEs. Combined, a total of Rs 53,895 crore has been received by the government from disinvestment and dividends from non-financial CPSEs. Dividend is making up for disinvestment shortfall,” he said.

Divestment status

The disinvestment target of Rs 51,000 crore in FY24 is witnessing a huge shortfall as there will be no strategic sale of CPSE this fiscal due to complications and issues with state governments in each transaction.

“There is no time left to complete any strategic sale this year. It's a pre-election year. Shipping Corporation and BEML strategic sales are stuck due to state government issues. CONCOR strategic sale didn’t happen this year,” he said.

Air India and Neelachal Ispat Nigam Ltd strategic sales were the only transactions that were completed in 2022. Though currently there are 14 ongoing transactions for strategic sale at various stages, none is near immediate completion.

This year, DIPAM has relied solely on OFS and IPO instruments to achieve Rs 10,051 crore proceeds so far.

“With OFS the government will not get much closer to the disinvestment target. Strategic sale is important to achieve the disinvestment target,” the official said.

No major buybacks have happened this year as DIPAM exempted eligible PSUs from capital restructuring norms so that their cash reserves can be used for expansion, he said.

After the new PSE policy was announced in 2021, no new company has been suggested under it to be privatised, closed, consolidated or subsidiarised. The government had announced the strategic sale of two public sector banks and one insurance company in Union Budget 2021, but nothing has happened so far.

“For the banks’ strategic sale, even informal roadshows have not happened. There is no forward movement on it as no Cabinet decision has been announced,” he said.

Consolidation versus strategic sale

The jury is out on whether small CPSEs should be sold quickly and efficiently or they should be first consolidated into large ones and then sold off. But for consolidated CPSEs investors with deep pockets will be needed.

“Consolidation will push back disinvestment. If disinvestment is taking three years, then consolidation ahead of strategic sale will take 10 years,” he said.