How Indian government monetized CPSE holdings over the years?

9 Mar 2023 , 09:36 AM

How exactly did the Indian government monetize the central public sector enterprises (CPSE) holdings over the years? Each year, the government sets targets for disinvestments and for dividends to be earned from the CPSEs. So, broadly, here is how the government basically monetizes its CPSE holdings.

• Through minority stake sale (disinvestment)
• Through strategic sale (including management change)
• Buyback of shares by the company
• Dividends paid out by the CPSE
• Offer for sale (OFS)
• Sale of shares held in the SUUTI (erstwhile US-64) portfolio
• Others (which includes sale of enemy shares)

Let us first look at how governments have monetized through dividends

Dividends received from CPSEs

The government, as per the latest mandate to the CPSEs, has asked all these government owned companies to distribute either 30% of the profit after tax or 5% of net worth (whichever is higher) in the form of dividends. This is how the dividends received by the government has stacked up against budget targets over the years.

Financial  Year	Dividend Target (Rs in Crore)	Dividend Received  (Rs in Crore)	Target  Achieved
FY2015-16	44,366	30,616	69.01%
FY2016-17	77,051	51,852	67.30%
FY2017-18	54,810	46,499	84.84%
FY2018-19	45,124	43,052	95.41%
FY2019-20	48,256	35,543	73.66%
FY2020-21	34,717	39,750	114.50%
FY2021-22	46,000	59,101	128.48%
FY2022-23	43,000*	50,279	116.93%

Data Source: DIPAM, Ministry of Finance (* shows Revised Estimates)

While the new rule of paying at least 30% of net profits as dividends has helped the government better monetize the CPSE holdings, there were other factors too. Firstly, the government has heavily supported PSU banks helping them turnaround. Some of the PLI schemes in areas like defence have been specifically made value accretive for the PSU companies. This has helped these companies to get good order books, better cash flows as well as better valuations. In fact, the improvement in the performance of the CPSEs has also helped in boosting the dividend pay-outs by these public sector companies.

A quick glance at the above table sums up the story. For the last 3 years in succession, the government has exceeded its CPSE dividend target for the year comfortably. In FY23, the dividends paid out by CPSEs to the government are already 117% of the revised full year target with one more month still to go. To a large extent, this is making up for the lower dividends that the government has been getting from the RBI in the form of capital distribution, as recommended by the Bimal Jalan committee.

How government monetized CPSEs via disinvestments

For the government, the disinvestment has included key items like sale of minority stake, Offer for Sale (OFS), buyback of shares and the sale of shares from the government SUUTI holdings. Here is how disinvestments performed versus targets.

Financial  Year	Disinvestment Targets (Rs in crore)	Disinvestment Achieved (Rs in crore)	Disinvestment  Target Achieved
FY2015-16	69,500	42,132	60.62%
FY2016-17	56,500	47,743	84.50%
FY2017-18	72,500	1,00,045	137.99%
FY2018-19	80,000	94,727	118.41%
FY2019-20	1,05,000	50,304	47.91%
FY2020-21	2,10,000	32,886	15.66%
FY2021-22	1,75,000	13,534	7.73%
FY2022-23	50,000 *	31,106	62.21%

Data Source: DIPAM, Ministry of Finance (* shows Revised Estimates)

Here are some of the key takeaways from the disinvestment data above.

• The divestment data has been very strong in FY18 and FY19. However, subsequently the performance has been very weak on the disinvestment front.

   

• In FY20, the last few months were almost lost in the COVID battle, which explains why the government ended up with just 47.9% disinvestment target achieved despite the relatively good start. 

   

• However, FY21 and FY22 were largely disappointing with just 15.7% and 7.7% target achieved. In both the years, there was a lot of hope built around specific cases like the LIC disinvestment, Air India strategic sale and the government exiting BPCL. LIC eventually happened only in FY23. Air India hardly generated anything for the government while BPCL is still a contentious issue. To add to these problems, uncertain markets and FPI selling also compounded the problem.

   

• In comparison, FY23 looks relatively better. The government had originally set a divestment target of Rs65,000 crore, which was later revised to Rs50,000 crore. The government has already achieved Rs31,106 crore (largely helped by the LIC IPO). The gap from here is likely to be filled, either through the sale of government stake in Hindustan Zinc Ltd or by sale of ITC shares held by the government in SUUTI.

For now, it still remains to be seen how the FY23 gap will be filled up.

How did the mix of disinvestments look like?

While disinvestment proceeds versus targets is a good way to look at the process, another way is to look at the break up. In fact, some interesting trends emerge, if you look at the break up of the divestment story.

• Some of the early strategic sales were more of transfer of ownership. In FY18, the revenues from strategic sale stood at Rs42,469 crore, but nearly 87% of this was the outcome of HPCL merger into ONGC. In FY19, out of the Rs15,914 crore from strategic sale, Rs14,500 crore was accounted for by the transfer of REC to PFC.

   

• The genuine strategic sale only began in FY20, when the government sold THDC India Ltd, NEEPCO and Kamarajar Port Ltd for a consideration of Rs13,383 crore. Subsequently, in FY22, there was the strategic sale of Air India to the Tata group, but it generated just about Rs2,700 crore for the government.

   

• Going ahead, the strategic sale contribution is likely to pick up as major PSU companies like Shipping Corporation, IDBI Bank, NMDC Steel, SAIL and BEML have already moved to Stage II of the strategic sale process. There are also others like Rashtriya Ispat Nigam (RINL) and CONCOR, where the EOIs are in the pipeline.

   

• For FY23 there is still a gap of nearly Rs18,500 crore, despite LIC minority stake sale accounting for 70% of the proceeds this year. For filling the gap, the government is likely to either rely on the total divestment of Hindustan Zinc Ltd or SUUTI stake sale. With HZL embroiled in a controversy over sale of Vedanta companies to HZL, the government may adopt the easier SUUTI route in the current fiscal year.