A flawed strategy

Asset sales for raising Rs 1 trillion is a mirage

The real possibility of a massive slippage in the disinvestment target of Rs 1.05 trillion in the current fiscal year is pushing the government to look for alternatives. It is now reportedly looking at selling assets owned by the Centre and central public sector enterprises (CPSEs) and raise about Rs 1 trillion by March-end. Assets that are being considered include land and brownfield operational assets such as pipeline, roads, mobile towers, and electricity transmission lines owned by CPSEs.
 
The idea of asset monetisation is worth pursuing as there are vast tracts of land held by government wings, such as the armed forces and railways, in metropolitan areas that developers might be willing to bid big bucks for. But completing the sale process in the given timeframe is almost impossible. Besides, the way it is being approached is fundamentally flawed. For one, the targeted assets belong largely to CPSEs, which would be forced to sell and transfer the proceeds to the government as dividend. This goes against the basic idea of giving functional autonomy to state-owned companies. Second, the asset sale is being considered at the near end of the fiscal year, solely to meet the Budget targets. This can affect valuations and realisation, and lead to legal complications.

 
Evidently, the government is considering this option because it is unlikely to complete the privatisation of companies such as Bharat Petroleum Corporation and Container Corporation of India in the current year, primarily because of poor planning. Since revenue collection is likely to fall short significantly, lacklustre performance on the disinvestment front will further complicate fiscal management. The government has raised only Rs 18,095 crore, or about 17 per cent of the disinvestment target, so far in the current year. The biggest reason why the government often struggles to meet the disinvestment target is because it does not approach the issue systematically. For instance, if the government wanted to go for large-scale strategic disinvestment, it should have selected the names early in the fiscal year. Such transactions take time as the potential buyers want to do their due diligence. The idea of asset sale of the CPSEs is another example of impromptu policymaking.

 

Therefore, the right approach would be that the government keeps a ready list of CPSEs that it intends to divest in the medium term, both strategically or through a minority stake sale. The process should be extended to other assets, such as land as well. This approach will not only allow the government to proceed more systematically but will also give market participants the necessary time to prepare and bid for assets. Such a process will result in higher competition among bidders and lead to better valuation. This will also give the government a fair idea as to how much money can be raised over the medium term, compared to the current system of deciding a target to plug the fiscal gap and then look for assets to sell. Ideally, asset sale should not be seen purely as an option to plug the deficit. The proceeds should be invested in creating new assets, which will help increase potential growth in the medium to long run.