Budget 2021 | Government must speed up disinvestment to bridge fiscal deficit

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Finance Minister Nirmala Sitharaman has presented the most-awaited Union Budget for 2021-22 to reboot the economy. As per the Economic Survey-2021, the GDP for FY21 has contracted by 7.7 percent. However, the government has projected nominal GDP growth rate at 14.4 percent for FY22. As the government spending increased and revenue declined due to global pandemic, the fiscal deficit for FY21 was pegged to 9.5 percent of the GDP against the target of 3.5 percent. Nevertheless, the government has fixed the fiscal deficit target of 6.8 percent of the GDP for next fiscal.

Since time still demands higher spending and revenue is muted, the government has a tough challenge at hand. To face the challenges, disinvestment would be an important means for the government. As the government had been garnering on an average of Rs 0.56 lakh-crore since 2014 through disinvestment. The government has already mooted an overhauled policy for CPSUs with this aim, barring four strategic areas, other sectors were divested under the AatmaNirbhar Bharat Abhiyan in the last year. The cabinet committee of economic affairs had cleared CPSUs policy on January 27.

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As expected, the minister unveiled the public sector enterprises policy in Budget 2021-22. The government has planned to speed-up disinvestment programmes. The government has fixed the target to raise Rs 1.75 lakh-crore through the disinvestment 2021-22. The minister has proposed to divest two public sector banks and a general insurance company. The NITI Aayog has been asked to work on the next list of CPSUs for strategic disinvestment. The disinvestment of the IDBI Bank, Air India, BPCL, Shipping Corp, Neelanchal Ispat Nigam, etc is in the list of the government to divest in 2021-22. The government would also bring an IPO of LIC, and for the same the required legislation amendment would be brought in.

However, during the current fiscal 2020-21, the total proceeds of disinvestment and share buyback is at a five-year low of Rs 0.19 lakh-crore so far. It is only about 8 percent against the target of Rs 2.10 lakh-crore. Although, we have two more months in the current fiscal, but the target of disinvestment, like last year, looks impossible to achieve.

The government intended to divest the stake of BPCL, Air India, and the Shipping Corporation of India in the current fiscal. But it could not succeed even though the stock market was touching new heights.

The COVID-19 pandemic forced the government to push the timeline to the next fiscal.

We have seen the case of Air India. Despite having 13 percent domestic market share and 19 percent international market share, it could not attract a single bidder in the first round. No one is ready to go for loss-making enterprises. The CPSUs require restructuring before going for divestment. As per the Public Enterprise survey 2018-19, there are 70 loss-making CPSUs. The loss-making enterprises have incurred a total loss of Rs 0.32 lakh-crore. It is 0.16 percent of nominal GDP. The top three enterprises: BSNL (47.1 percent), Air India (26.8 percent) and MTNL (10.7 percent), have claimed 85 percent of the total loss. In this backdrop, a revised mechanism for fast tracking closure of loss making CPSUs has to be worked out.

Thus, it would be interesting to see how the government achieve the target of disinvestment in the forthcoming fiscal year, as the pandemic is still an ongoing threat. However, the government has started to work in this direction. The government has already invited the expression of interest for Air India, BPCL and SCI.

We hope, unlike 2021, the government would be able to achieve the target in 2022.