Union Budget 2021: FM Sitharaman goes big on PSU privatisation, bank recapitalisation

Emphasising the need for privatisation, Finance Minister Nirmala Sitharaman in her Union Budget 2021 speech on February 1 revealed the government's intent to focus more on disinvestment and privatisation.

She proposed to divest two PSU banks and one general insurance company in FY22.

Sitharaman said all divestments announced so far will be completed in FY22, including that of LIC IPO. BPCL, CONCOR, Pawan Hans and Air India.

The government set the FY22 divestment target of Rs 1.75 lakh crore.

The government will create a new list of companies for divestment, the FM said. Besides, it will form SPV for monetising land owned by the government PSUs.

The FM also made announcements on the front of recapitalisation of PSU banks. She announced the PSU bank recapitalisation scheme of Rs 20,000 crore for FY22.

Economists and analysts have been pointing out that the non-performing assets have been an issue, especially for the banks, and are rising due to stress in economic activity.

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In the last Union Budget, the government had set an ambitious target of strategic divestment to the tune of Rs 2.1 lakh crore and subsequently, in May 2020, the government came up with a new coherent public sector enterprise policy which stated that there will be a maximum of four public sector companies in strategic sectors and will eventually privatise other segments.

However, no significant progress was made in FY21 as the COVID-19 pandemic disrupted the economic activities, forcing potential buyers to save money and avoid making fresh investments.

Strategic divestment will be a strong boost to PSU stocks that have a significant valuation comfort.

Brokerage firm Antique pointed out that in the year 2002, the entire public sector enterprise as a basket was re-rated (nearly 70 percent outperformance) as strategic divestment took place.

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