Uncertainty looms over Rs 2.1-trn divestment target amid coronavirus spread

The Covid-19 pandemic and the resultant slowdown in the global economy have cast serious doubts on the highest-ever disinvestment target of Rs 2.1 trillion that Finance Minister Nirmala Sitharaman had set for 2020-21.

The most optimistic assumption, according to informed sources, is there will be no transaction in the first half of the year (April-September). The worst-case scenario is the two marquee names up for privatisation — Air India and Bharat Petroleum — may not happen this year, and what the Centre may get in divestment proceeds could just be a fraction of the target.

In its April Monetary Policy report last week, the Reserve Bank of India said the global economy is expected to go into recession after taking into account the impact of the Covid-19 pandemic. The International Monetary Fund has said the global economy is headed for its worst phase since the Great Depression.

“Even if the pandemic is contained soon, it will take time for the global economy and the markets to recover. Any divestment transaction, be it strategic sale, or any offering on the stock markets, will not happen before October, at the earliest,” said a senior government official.

Some officials admit that the impact of the pandemic could play out for the entire year. “Aviation is one of the sectors that have been hit the worst. The energy sector is also hit. Because of reduced economic activity, demand for petroleum products has gone down,” said a second official.

“We will have to see how soon these sectors fully recover. These factors will have an impact on what sort of interest we receive from interested buyers for Air India and BPCL,” said a second official.

Of Rs 2.1 trillion, some Rs 90,000 are planned to be garnered from sale of Centre’s stake in state-owned financial institutions.

The main transactions that the Finance Ministry’s Department of Investment and Public Asset Management (Dipam) and the Department of Financial Services (DFS) were counting on for FY21 were the strategic sale of Air India, BPCL, Concor and Shipping Corp, and the blockbuster initial public offering of LIC India.

The Centre plans to sell its entire stake of 100 per cent stake in Air India, 53 per cent in BPCL, 63.75 per cent in Shipping Corp, and most of its stake (30.8 per cent) in Container Corp.

The date of submission for BPCL’s expression of interest (EoI) by prospective buyers has already been postponed to June 13 from May 2. The date is likely to be extended for Air India as well. Already, Dipam has relaxed some conditions for prospective buyers in terms of submission of documents, in light of Covid-19. The date of submission of EoI for one of the smaller strategic sales being planned, Central Electronic (CEL), has been extended by a month to May 16.

The EoIs for Concor and Shipping Corp have not yet been issued, nor have the investor roadshows being conducted.

For 2019-20, Dipam garnered proceeds of Rs 50,298.6 crore, a shortfall of Rs 14,701 crore, compared with the revised estimates of Rs 65,000 crore, which itself was a climb-down from the earlier target of Rs 1.05 trillion.