At the face of it, the proposal is a positive development for the country's insurance industry.
In the Union Budget 2021-22, the government has pegged the disinvestment target for FY22 at Rs 1.75 lakh crore. This will include the shedding of Centre's stake in two state-owned banks and a general insurance company, and large-scale asset sales, Finance Minister Nirmala Sitharaman said during her budget presentation.
The divestment programme will also include the planned initial public offering (IPO) of Life Insurance Corporation of India (LIC) and the privatisation of Air India, Bharat Petroleum Corporation Ltd (BPCL), Container Corporation of India Ltd, or CONCOR, Pawan Hans, NINL and Shipping Corporation of India (SCI), she said.
"Other than IDBI Bank, we propose to take up the privatisation of two public sector banks and one general insurance company in the year 2021-22. This would require legislative amendments and I propose to introduce the amendments in this Session itself," Sitharaman said.
Later, when asked at the post-budget press conference, neither she nor DIPAM Secretary Tuhin Pandey gave out the names of the three entities.
In her speech, Sitharaman also gave details of the 'strategic sector' policy which she had first announced in May 2020 as part of the 'Aatmanirbhar Bharat' package.
"I am happy to inform the House that the government has approved the said policy. The policy provides a clear roadmap for disinvestment in all nonstrategic and strategic sectors. We have kept four areas that are strategic where bare minimum CPSEs will be maintained and rest privatised. In the remaining sectors all CPSEs will be privatised," she said.
The four strategic sectors are atomic energy, space and defence, transport and telecommunications, power, petroleum, coal and other minerals, and banking, insurance and financial services. It is clear that the Centre is counting multiple sectors within these four broad categories. It should also be remembered that the completion of this process has no fixed timeline.
For 2021-22, the target of Rs 1.75 lakh crore is quite achievable and the Centre already has several plans underway, DIPAM Secretary Pandey said. Out of that amount, Rs 1 lakh is expected from the LIC IPO and reduction of the Centre's stake in two banks and one general insurance company.
This comes after the COVID-19 pandemic-hit FY21 derailed the divestment plans for the year, falling substantially short of the target of Rs 2.1 lakh crore. The revised estimate for 2020-21 is Rs 32,000 crore, all through market offerings and buybacks.
A majority of the proceeds in FY22 is expected to come from the privatisation of BPCL, Air India, CONCOR and SCI, and the mega IPO of LIC, which were expected to happen this fiscal and will be rolled over to the next financial year. Already, the government has invited expressions of interest (EoIs) for BPCL, SCI and Air India.
During her budget speech, Sitharaman also said that NITI Aayog will come up with a new list on companies to be privatised, and that states will also be incentivised to divest their companies.
She also said that the Centre will go big on monetising land and non-core assets of various departments and PSUs in the coming fiscal. "Monetising of land can either be by way of direct sale or concession or by similar means. This requires special abilities and for this purpose, I propose to use a Special Purpose Vehicle in the form of a company that would carry out this activity," she said.
"In order to ensure timely completion of closure of sick or loss-making CPSEs, we will introduce a revised mechanism that will ensure timely closure of such units," Sitharaman added.
Except in the FY18 and FY19, all the governments fell short of the divestment targets in the last ten years. Though for FY20, the government had set a target of Rs 1.05 lakh crore, it managed to achieve only 48 percent of it, or Rs 50,304 crore.
With the burgeoning fiscal deficit too, the government will be expecting an improved performance in divestment during the coming financial year.