Will the divestment target be raised in the upcoming Budget?

Faltering disinvestments: The government is all set to present its interim budget for 2024-2025, and its divestment target waits to be met. As per the Department of Investment and Public Asset Management, as of January 1, the government managed to garner Rs 10,051.73 crore via divestment or strategic sale, against the disinvestment target of Rs 51,000 crore set in FY24. With only three months left in the ongoing fiscal, and government is at a long distance from achieving 80 per cent targets. The analysts and experts believe with a spillover of some key big-ticket disinvestment, the target of disinvestment may decline in the upcoming budget. 

“The disinvestment target next year would be roughly the same or will go below that as there are some impending big-ticket disinvestments that will spill over to the next year,” Rajni Sinha, Chief Economist, CareEdge told Republic Business.

The Government of India (GoI) has managed to raise Rs 10,051 crore via disinvestments in Coal India, Hindustan Aeronautics Ltd, HUDCO, Rail Vikas Nigam, and SJVN (formerly known as Satluj Jal Vidyut Nigam) against its FY24 budgetary target of Rs 51,000 crore.  

“The sentiment attached to divesting is not good in India. Since the government is in election mode, the process has slowed down. Also, there is no denying the fact that the market sentiment was not upbeat. Thus, many transactions had to be called off,” one economist claiming anonymity said. 

Not meeting divestment target

The government's difficulty in meeting the disinvestment target has to do with many factors ranging from election fervour to unfavourable market conditions. In FY24, the government set a target of Rs 51,000 crore, but it achieved only Rs 10,051 crore. Similarly in FY22, the government set the disinvestment target at Rs 78,000 crore, but the government managed to mobilise Rs 13,534 crore. Similar is the situation this time, when the government managed to garner one-fifth of the divestment target. 

 “The government set the lower target this year essentially as a way of bringing the fiscal deficit down,” Sen added. 

In FY23, the government set a disinvestment target of Rs 65,000, and only Rs 35,000  crore was achieved that day. But in FY22, the target was to garner Rs 80,000 crore via disinvestment, but the government did fairly well and got Rs 84,000 crore via disinvestment. 

Big-ticket divestments such as IDBI, BPCL, and NMDC hit roadblocks for various reasons that derailed the divestment process. The government intends to sell its stake in IDBI, NMDC, and BPCL.

Not meeting disinvestment targets does not go down well for India’s fiscal deficit, but higher dividend receipts are cushioning the impact of the shortfall on the disinvestment front. As of January 1, the government received dividends of Rs 43,690.29 crore in the ongoing fiscal. However, what remains to be seen is how this shortfall will impact the government’s fiscal deficit target going forward. 

Comfort from Dividend 

The shortfall in divestment this year is going to be met by higher-than-expected dividends from Central Public Sector Enterprises (CPSE) and RBI. This year so far the government garnered Rs. 43,843.38 crore so far as dividends.  Reportedly, the government is going to mop up Rs 120 billion more than the budget estimate as dividends from public sector undertakings and the RBI. This year as well, the expectation remains whether the government will set a lower disinvestment target for FY25.