Govt should walk the talk: Ambitious PSU divestment plan needed in Budget 2025

It will be considered as one of the biggest reforms undertaken and will be well-received by investors across the board and across borders. In addition, the depth of the Indian market has increased to such an extent that the entire float can be absorbed without impacting the liquidity of the market.

Example set by Vajpayee govt 

During Modi 2.0, the government completely missed the public sector undertakings (PSUs) disinvestment bus and always missed the target it set in the budget. It should take a leaf out of the Vajpayee government, which is credited to have undertaken the most successful disinvestment programme and even set up the Disinvestment Ministry under Arun Shourie.

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For the government, control of PSUs is important. Whether it holds 90 percent equity or 65 percent or 51 percent, the control should remain with the Centre. By retaining control and divesting a significant part of the equity, it will not only mobilise funds for development work, but will also make the people of India (investors) partners in the growth.

There should not be any hesitation on the part of the government to set an ambitious target of Rs 2 lakh crore. We have seen that there is good demand for the papers being floated by PSUs. In the last couple of years, after the Centre implemented the cleansing process of the companies it own, we have seen investors, including foreign portfolio investors (FPIs), showing interest in lapping up PSU stocks. This has created goodwill for the PSU stocks and this is an opportune time for the government to make good use of the opportunity.

Appetite for quality papers

The Indian markets have always shown a healthy appetite for quality papers and there is no dearth of liquidity in the system. The initial public offering (IPO) market stands testimony to it. In 2024, via IPO, Rs 1.60 lakh crore were mobilised, whereas close to Rs 1.40 lakh crore were mobilised through the qualified institutional placement (QIP) route. In 2025 too, the IPO pipeline is expected to be around Rs 2 lakh crore.

SME IPO segment

For the government, an ambitious divestment target becomes even more important when one of its regulatory agencies, the Securities and Exchange Board of India (Sebi), has to clamp down on the SME (small and medium-sized enterprises) segment and tighten the screws around the SME IPO process.

Sebi came down heavily on this segment after it saw the possibility of rigging and retail investors's money was taken for granted by the issuers. During 2024, the SME IPO segment mobilised close to Rs 8,500 crore, equivalent to the government’s own miniscule mobilisation of a similar amount through the offer for sale (OFS) of four PSUs, against a disinvestment target of Rs 50,000 crore.

Instead of leaving the retail investors at the mercy of SMEs and aggressively-priced IPOs, the government can offer them an opportunity to earn profit by reserving certain portion for them and by also offering PSU shares at a discount.

In 2003, when the Vajpayee government divested 25 percent stake in Maruti Suzuki (then Maruti Udyog, MUL), it offered a 5 percent discount to retail investors to the offer price. The government can take more such steps to encourage domestic retail investors.

In this regard, the Centre can take a cue from the Vajpayee’s divestment programme in 2002-03, where it sold off 32 sick companies and hotels housed under ITDC. That time, Mr Vajpayee did not talk but walked. Now the time has come for Mr Modi to walk the talk.

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