Govt may miss FY23 revised divestment target, says Bank of Baroda

The Union government has garnered divestment proceeds of roughly Rs 31,107 crore so far this fiscal year (FY23) and is likely to miss the revised target of Rs 50,000 crore, Bank of Baroda said in an analyst note on Thursday.

The note, authored by Bank of Baroda economist Sonal Badhan, said if the Centre decided to reduce the stake of all state-owned companies to 51 per cent, the potential kitty for divestment would be around Rs 3.5 trillion.

“Of this, Rs 1.7 trillion can come from public sector enterprises and Rs 1.8 trillion from public sector financial institutions,” the report stated.

“The government has managed only around Rs 31,000 crore as disinvestment proceeds so far. But there have been compensations in the form of high dividends of around Rs 50,000 crore. As the government disinvests, there will also be a tendency for dividends to come down,” said Madan Sabnavis, chief economist at Bank of Baroda.

In her 2023 Union Budget, Finance Minister Nirmala Sitharaman revised the divestment target for the current fiscal year downwards to Rs 50,000 crore, from Budget Estimate (BE) of Rs 65,000 crore. For FY24, the divestment target has been set at Rs 51,000 crore.

Till now, the Rs 31,107 crore in disinvestment receipts for the year has come from the initial public offering of LIC (Rs 20,516 crore), and offer-for-sales of ONGC (Rs 3,059 crore), IRCTC (Rs 2,724 crore), and others. The Centre has also divested almost the entire stake it held in Axis Bank through Specified Undertaking of Unit Trust of India (SUUTI) for Rs 3,839 crore. There have also been buybacks by PSUs, including GAIL (Rs 498 crore).

The report gave the findings of a hypothetical modeling by BoB, on what if the government was to divest its stake in all state-owned enterprises and financial institutions till 51 per cent.

The report stated that the maximum revenue potential would come from firms, such as Hindustan Aeronautics, Coal India, ONGC and Indian Railways Finance Corporation, among others, which could fetch Rs 75,000 crore.  

It said around only Rs 25,000 crore would be collected from nearly 10 companies, including Scooters India, HMT, ITI, State Trading Corp, MMTC, Andrew Yule, among others.

“As the stake of the government comes down, so does the lower dividend inflows from these enterprises. Currently, the dividend earned from all PSEs (bank and non-bank) stands at Rs 50,000 crore (for FY23),” the report stated, adding that at present level of Sensex, the total market cap of government holdings amounts to Rs 17 trillion. If the stake is brought down, around Rs 3.5 trillion will be released, which implies that the dividend yield stands at around 3.0 per cent.