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Friday, February 26, 2021

Divestment push: 2 PSBs, 1 insurer added to the list

In the Union Budget for 2021-22, the government has announced taking up the privatisation of two public sector banks (in addition to IDBI Bank) and one general insurance company in the upcoming fiscal.

Written by Pranav Mukul | New Delhi |
Updated: February 2, 2021 3:37:14 am
Divestment push: 2 PSBs, 1 insurer added to the listSitharaman also said that to fast forward the disinvestment policy, the Niti Aayog will be tasked to identify the next list of PSUs that would be taken up for strategic disinvestment. (File)

Laying down a clear policy roadmap for disinvestment, the government has identified four strategic sectors — atomic energy; space and defence; transport and telecommunications; power, petroleum, coal and other minerals; and banking, insurance and financial services — in which it will have bare minimum presence. In the Union Budget for 2021-22, the government has announced taking up the privatisation of two public sector banks (in addition to IDBI Bank) and one general insurance company in the upcoming fiscal.

“In the AtmaNirbhar Package, I had announced that we will come out with a policy of strategic disinvestment of public sector enterprises. I am happy to inform the House that the Government has approved the said policy. The policy provides a clear roadmap for disinvestment in all nonstrategic and strategic sectors. We have kept four areas that are strategic where bare minimum CPSEs will be maintained…,” Sitharaman said, while presenting the Budget.

In addition to these, public sector enterprises in the non-strategic sectors will either be privatised or closed. Sitharaman also said that to fast forward the disinvestment policy, the Niti Aayog will be tasked to identify the next list of PSUs that would be taken up for strategic disinvestment.

The government’s current disinvestment pipeline comprises a number of pending transactions including Air India, Bharat Petroleum Corp Ltd, Shipping Corporation of India, Container Corporation of India, IDBI Bank, BEML, Pawan Hans Ltd, Neelachal Ispat Nigam Ltd, among others, which the Budget pegged would be completed in 2021-22.

During the upcoming fiscal, the government is also expected to bring the initial public offering of Life Insurance Corporation of India, for which the requisite amendments will be brought in the ongoing Budget Session of the Parliament.

Explained

Key to capital raising plans

A clear policy roadmap is expected to provide an impetus to the government's disinvestment efforts, which will be key to its capital raising plans in order to meet the fiscal deficit targets going ahead.

For 2020-21, the government had set an ambitious Budget estimate of Rs 2,10,000 crore from disinvestment receipts and sale of stake in public sector banks and financial institutions. Of this, only Rs 32,000 crore was realised as per the revised estimates for 2020-21. For 2021-22, the government has budgeted receipts of Rs 75,000 crore from disinvestment and Rs 1,00,000 crore from sale of stake in public sector banks and financial institutions

“To similarly incentivise States to take to disinvestment of their Public Sector Companies, we will work out an incentive package of Central Funds for States,” she added.

“Idle assets will not contribute to AatmaNirbhar Bharat. The non-core assets largely consist of surplus land with government Ministries/Departments and Public Sector Enterprises…monetizing of land can either be by way of direct sale or concession or by similar means. This requires special abilities and for this purpose, I propose to use a Special Purpose Vehicle in the form of a company that would carry out this activity,” Sitharaman said.

Furthermore, the government decided to increase FDI limit in insurance companies to 74% from the current 49%. Under the new FDI structure for insurance companies, the majority of directors on the board and key management persons would be resident Indians, with at least 50% of directors being independent directors, and specified percentage of profits being retained as general reserve. This, experts believe, will help the government’s effort in privatising public insurance companies.

“The bold measures announced in the banking and financial sector reflect the commitment of this government in accomplishing the reforms agenda with a clear cut roadmap…The proposed privatisation of two public sector banks and one general insurance company will further strengthen the financial sector besides garnering additional revenue for the government. Enhancing the FDI cap in insurance sector to 74% from 49%, allowing foreign ownership and control with safeguards should help attract greater capital and know how in this sector. This is critical to increase insurance penetration which is abysmally low in our country and also help augment long term funds availability to the economy,” said FICCI President Uday Shankar.

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