Govt mulls LIC, PSBs to save divestment target

The critical role in meeting the government’s Rs 40,000-crore disinvestment target for the current financial year is likely to be ultimately played by the old guards, Life Insurance Corporation (LIC) and the public sector banks (PSBs).

Total disinvestment revenue in 2011-12 has been just Rs 1,144 crore, from offloading shares in Power Finance Corporation. With share markets down, the government has kept away from more divestment.

The finance ministry is discussing a proposal to allow LIC and PSBs to acquire five to 10 per cent of the government stake in the public sector units to be put on the block before the financial year ends on March 31.

A senior official told Business Standard the four secretaries in the ministry — finance, economic affairs, expenditure and financial services — were dwelling on the proposal. The official stressed the limit was set to be capped at 10 per cent.

“A consensus on this mode is yet to be arrived at for putting up before the finance minister but the ministry is set to concretise its strategy in a week to 10 days, on how to meet the disinvestment shortfall,” he said. The final plan would be sent for cabinet approval. "We have not received any official intimation from the government in this regard. However, LIC remains a net buyer and if good scripts comes up at good prices, we would invest," a senior LIC official said.

“Earlier, too, whenever state-owned companies came up with issues, we had invested and picked up stakes,” he added. “In any case, the companies coming up with issues (FPO and IPO) are fundamentally good ones and these are always good investment opportunities,” said another LIC official.

LIC also has enough headroom in equity investment this year. Given the choppy equity market and lower sales of unit-linked products, the insurance behemoth had only invested around Rs 15,000 crore in equities during April-October of the year’s target of Rs 40,000 crore.

A buyback of government equity by cash-rich PSUs and cross-holdings is among the options being considered by the government to bridge the huge target shortfall.

The government has already approved disinvestment in Oil and Natural Gas Corporation, Steel Authority of India, Hindustan Copper, Bharat Heavy Electricals and National Buildings Construction Corporation.

In line for approval are Rashtriya Ispat Nigam and Hindustan Aeronautics.

The department of disinvestment is also re-examining all the central public sector enterprises eligible for disinvestment, to reach as close to the Rs 40,000-crore target as possible.

The government had got Rs 22,763 crore from disinvestment proceeds in 2010-11, against a target of Rs 40,000 crore. It divested some stake in six companies — SJVN, Engineers India, Coal India, Power Grid, MOIL and Shipping Corporation of India.