New Delhi: ThePrint has learned that there is a marked change in the government’s policy priorities towards disinvestment. The change involves moving away from a single-minded focus on meeting the annual disinvestment target to a calibrated approach, which involves balancing fiscal requirements with the government’s responsibilities towards other stakeholders.a top government official said.
In a candid and independent interview with ThePrint, Tuhin Kanta Pandey, secretary, Department of Investment and Public Asset Management (DIPAM), pointed out that, while the government is going ahead with its privatization plans under the Public Sector Enterprises Policy, progress on Getting there will be gradual.
He said that the government is looking at disinvestment from a broader perspective, apart from just fiscal requirements. However, in doing so, it is also realizing that there is limited scope for further disinvestment that does not involve full privatisation.
Even with full privatisation, which Pandey said the government is moving towards, the reality is that the process will be slow.
In May 2020, Finance Minister Nirmala Sitharaman announced an ambitious Public Sector Enterprises Policy. Under the policy, the government will ensure that it maintains minimum presence in certain strategic sectors.
In all other sectors, the government has made it clear that it will exit their businesses by either selling their companies or shutting them down.
Looks like a lot has changed now.
“We stand by the policy, but it will have to be done gradually to see real disinvestment,” Pandey said.
An important part of the change in the government’s approach is to balance what it can earn by selling its stake in a company and what it can earn through dividends paid by the companies it owns. related to attitude.
“The disinvestment strategy should not be seen only from the perspective of fiscal receipts,” Pandey said.
“It has many objectives, of which fiscal considerations are one. From the point of view of fiscal receipts as well, both from disinvestment and dividend Central Public Sector Enterprise ,CPSE) are important. We are now adopting a balanced approach. We are saying that disinvestment and dividend should be looked at together,” he said.
“Of these two, the focus on disinvestment till recently has been one-sided,” he said. “However, disinvestment of shares also means that future receipts on account of dividends are forgone. Therefore, a holistic approach to the issue is important.”
Simply put, what Pandey was saying was that the government will have to choose between eating chicken now or eating its eggs in the years to come. Till some time ago, the focus was only on eating chicken.
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both dividend and disinvestment
This refocus on dividends isn’t just words. In November 2020, DIPAM issued an advisory to the CEOs and Managing Directors of all CPSEs on “Sustainable Dividend Policy”.
As per the guidelines issued in 2016, CPSEs were to pay 30 per cent of their profit after tax or 5 per cent of their net worth, whichever is higher, as dividend to their shareholders.
In its November 2020 advisory, the government informed the heads of CPSEs that it has observed that public sector companies are paying only a minimum level of dividend, which needs to be changed.
It added, “CPSEs are advised to endeavor to pay higher dividend taking into account relevant factors such as profitability, capital expenditure requirements as well as cash/reserves and net worth.”
In other words, the government was asking CPSEs to pay more attention to their finances so that they have enough profits to pay dividends, and these dividend payments should be higher than they are now.
The advice paid off.
As per annual budget figuresThe dividend received by the Government from CPSEs was falling in the period 2017-20. Since this advisory came in the second half of the financial year 2020-21Its impact on dividends that year was limited – the government received only 12 per cent more dividend from CPSEs than in 2019-20.
However, the next year, when CPSEs had a full year to follow the advisory, the dividend paid to the government rose to around Rs 60,000 crore – a nearly 50 per cent increase over 2020-21 and the prior year. 67 percent increase in Consultant Year 2019-20.
Although dividends from CPSEs are budgeted to be lower than those levels in 2022-23 and 2023-24, they are expected to return to the levels of five years ago.
turning goals into reality
According to Pandey, a few years back, the government was setting a much higher disinvestment target than was realistically possible. Now the approach is more pragmatic, he said.
“Initially, the finance ministry insisted on setting higher targets for disinvestment,” said Pandey. “This amount is possible only if one privatizes very large organisations. Assume that even if we privatize 10 mid-cap companies, we will earn only Rs 20,000 crore in equity value.
budget data This shows that there were some years when the government had set disinvestment targets which appeared to be different from the actual disinvestment in previous years.
For example, the target was kept at Rs 2.1 lakh crore in 2020-21, while last year a little over Rs 50,000 crore was earned. In 2021-22, the target was set at Rs 75,000 crore, which is almost double the actual disinvestment of Rs 37,896 crore in the previous year.
Pandey pointed out that these high targets were in contrast to the actual potential of disinvestment.
The government can reduce its stake in a company to 51 per cent and still retain control. Less than 51 percent would involve privatization. This means that the potential revenue that can be earned by selling stakes in companies, without resorting to wholesale privatization, is limited. They said.
“Over Rs 4.3 lakh crore disinvestment proceeds have been mobilized since 2014,” he said. Market value left.
“Secondly, even if we have to completely privatize a large company, such a process takes no less than 1.5 years,” Pandey said. “Processes in a Mergers and Acquisitions (M&A) transactions are such.
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not just about making money
Another factor contributing to the slower and more deliberate approach being adopted by the government is that it is keeping in mind the interests of common shareholders, Pandey said.
“Hence, even for the realizable value of Rs 1.8 lakh crore, the government will have to do it in a calibrated manner so as to protect minority shareholders,” he explained.
“The government, after encouraging people to invest in CPSE stock, cannot allow those investments to go waste because the government suddenly increases the supply of that stock by selling its stake,” he added.
Finally, in theory, the government could privatize many large companies in strategic sectors that the government has said it will retain a presence in, meaning there is limited room for stake sale.
According to the DIPAM website, earlier this month the government offered for sale its 3 per cent stake in Coal India, for which it received Rs 4,185.31 crore.
“We have calibrated the disinvestment target keeping all these factors in mind,” Pandey said. “People say it is too less, but I believe even this target of Rs 50,000 crore is ambitious. Easy disinvestment. If we are able to bring down our stake in all the remaining CPSEs to 51 per cent, what is left is around Rs 1.8 lakh crore. That in itself is a big order.
The secretary also said that the government has several companies which are not in good shape, and hence, even if the government tries to sell its stake in them, it may not find a buyer.
Pandey further pointed out that there are some sector-specific issues which slow down the disinvestment process. For example, the government has been repeatedly saying that it will privatize two banks. However, for this to happen, he must first knock on the door of Parliament.
He said, “In the matter of disinvestment of banks, first of all a law has to be made.”
“Banks were nationalised, and hence to privatize them, an enabling provision has to be passed in Parliament before the process can begin. The Department of Financial Services (DFS) deals with the issue, not DIPAM.
(Editing by Richa Mishra)
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