Budget 2024 to See Drastic Drop in Government Divestment Goals: Reports

10 Jan 2024 , 10:53 AM

As the government shifts its attention to the general elections that are scheduled for next year, India may set a target for divestment from state enterprises in fiscal 2024–25 that is lower than the objective this year to stand at the lowest in nine years, a senior official told ET.

The finance ministry is currently developing the national budget for the upcoming year, which will be presented in parliament on February 1st, therefore the government official, who spoke to Reuters on the condition of anonymity, did not provide a precise figure.

If the amount falls short of the Rs 510 billion ($6 billion) divestiture objective for this year, it will be the lowest since the Rs 400 billion aim set in fiscal 2013–14, the year Prime Minister Narendra Modi took office.

However, the source said, a lower goal for the upcoming fiscal year, which starts on April 1, appears likely because the government is unsure whether regulatory delays will allow it to finish selling the majority of its holding in IDBI Bank.

‘There is no clarity on when the ‘fit and proper’ vetting would be completed, and there will be other approvals required from the RBI once a buyer is shortlisted, making the process time-consuming,’ added the official.

The official was referring to the Reserve Bank of India, the country’s central bank. They requested to remain anonymous because officials in the finance ministry are not permitted to speak to the media while the budget is being prepared.

Based on its share price, Reuters calculated that the sale of IDBI Bank would bring more than Rs 200 billion ($2.4 billion) into government coffers when it is all said and done.

According to the report, the administration may decide to focus less on privatization and divestment because of the approaching elections.

Launching such exercises before of elections usually elicits caution from governments due to the possibility of backlash from major unions and employees.

Despite having a better track record than any prior administration, Modi’s government has only twice in the last ten years met its privatization and divestment targets.

The government’s sole noteworthy achievement in its 2020 divestment plan, which called for the sale of state-run companies in everything from banking and insurance to transportation and energy, was Air India. It was forced to sell other companies, such as Bharat Petroleum Corp., due to lack of interest.

The government official went on to say that there is now less room for minority interest sales in several large state-owned businesses.

This is because, he continued, the government’s investment in many of these companies has reached the legal threshold of 51%, which restricts its capacity to raise money through these kinds of sales.

According to Sandeep Shah, managing partner at consultancy firm N.A. Shah Associates LLP, who talked to ET, lowering the divestment aim indicates that the government may be reevaluating its policies and may wish to concentrate on conducting such exercises professionally.

‘The recent large dividend payouts, coupled with profitability of public sector companies, and investor interest, can be a trigger point,’ Shah stated.

India expects state-run companies to pay out more dividends this fiscal year than the government anticipates.

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