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Thursday, March 04, 2021

DIPAM Secretary: ‘Staggered divestment approach’

The Budget for 2021-22 unveiled a strategic disinvestment policy, under which the government has identified four strategic sectors in which it will have “bare minimum presence”.

Written by Pranav Mukul , Sunny Verma | New Delhi |
Updated: February 4, 2021 4:24:01 am

Government will adopt a staggered approach in implementing the privatisation policy for CPSEs and banks as “indiscriminate divestment could suppress” value of Central Public Sector Enterprises. Basing disinvestment decisions on the benchmark stock indices was not a good strategy and that offering everything as if on a “fire sale” would yield no benefit, Tuhin Kanta Pandey, Secretary, Department of Investment and Public Asset Management (DIPAM) told The Indian Express on Wednesday.

The Union Budget for 2021-22 presented in the Parliament on Monday unveiled a strategic disinvestment policy, under which the government has identified four strategic sectors in which it will continue to have “bare minimum presence”. This includes the financial services sector, and the government announced the sale of two state-owned banks and one public sector general insurer.

Even as the financial institutions for strategic sales have not been identified yet, Pandey said that announcement of a number meant there was a sense of urgency in conducting these transactions. “It is both a statement of intent and of action. The FM (Finance Minister Nirmala Sitharaman) said two things, statement of intent is that we will privatise banks but she also gave the numbers — two banks and one insurer — so there is an urgency there. It’s not merely going for a legislative amendment and wait and watch, it is also a target that is being given to the Department of Financial Services,” he said.

When asked whether privatising two banks while the government continued to own the remaining ten lenders was contradictory to its plan of having “bare minimum presence” in a strategic sector, Pandey said: “…early success in our program will lead to more offerings in future. There is no point offering everything, it’s not like a fire sale. Our process is laid down and is based on good competitive bidding”. Government-led capital spending will create lot of demand in private sector, eventually creating opportunities for them to acquire public assets for adding capacities, he said.

In the Budget, the Centre pegged the disinvestment target for the upcoming fiscal at Rs 1.75 lakh crore. This is compared to Rs 2.1 lakh crore budgeted in 2020-21, of which Rs 19,499.07 has been raised so far while the budget has pegged revised estimates at Rs 32,000 crore for the fiscal year. Offer for Sale has been the preferred route for disinvestment as the government raised Rs 4924 crore through OFS of HAL, Rs 4473 crore in case of IRCTC OFS and Rs 2737 crore through SAIL OFS.

“Many people are pointing out that the target has been revised from Rs 2.1 lakh crore to Rs 1.75 lakh crore. The point is that you can write any number but you have to successfully culminate it into transactions…We should go a little bit deeper into the Rs 1.75 lakh crore number, which is a very ambitious number. If you have a fiscal deficit target and your revenue and expenditure projections, whatever balance remains…as a balancing number if you say Rs 2.10 lakh crore, has a bottom-up exercise been done of whether you’ll be able to do it,” Pandey said.

He also pointed out that while the broad markets continued to perform well, the disinvestment target for 2020-21 suffered because the government’s two main planned offerings — Air India and BPCL — belonged to sectors that were immediately hit by the pandemic. “When money was coming in during COVID time, it was restricted to very few companies. There were a large number of companies in power, oil, etc because oil prices and power demand crashed and their stocks crashed. Most of our companies are in these sectors and not in sectors like IT,” he said.

“We cannot have the headline SENSEX to tell us that this is a good environment. One should watch the CPSE index. Only then it will give you an opportunity. If we do indiscriminate disinvestment, we only depress the value of CPSE stocks, which means investor wealth goes down, which means they are relatively less prepared to subscribe to our offerings and this leads to further discounts, people exiting in hordes and it leads to a crash in our stocks. That’s not a good strategy,” he added.

From its peak value of 2798 recorded in January 2018, NIFTY CPSE Index had been on a steady decline till March 2020, when it hit a trough of 1137 — a fall of over 59 per cent — before rebounding to 1678 as on February 3, as per data from National Stock Exchange.

“…strategic sale is where market is favourable. That’s where they (the market) say that they will give more value to private management over public sector management,” Pandey said. “We have to do these sales selectively and intelligently and not indiscriminately. We have to build our disinvestment on strategic basis,” he said.

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