Budget 2019: Air India sale on cards, govt hikes divestment target for FY20

Will also offer more CPSEs for strategic participation by the private sector

The government will reinitiate the process of divesting its stake in national carrier Air India, even as it increased its disinvestment target in the Union Budget 2019-20 (FY20) presented by Finance Minister Nirmala Sitharaman on Friday.

“Strategic disinvestment of select central public sector enterprises (CPSEs) would continue to remain a priority of this government. In view of current macroeconomic parameters, the government would not only reinitiate the process of strategic disinvestment of Air India, but would offer more CPSEs for strategic participation by the private sector,” Sitharaman said during her Budget speech.

The target for disinvestment receipts has increased to Rs 1.05 trillion for FY20, from Rs 90,000 crore in the interim Budget presented in February.

Significantly, the finance minister said that the government’s stake in non-financial public sector units (PSUs) can go below the majority stake of 51 per cent. Instead of holding a direct stake of 51 per cent in PSUs, “government-controlled institutions” can chip in the remaining sum which the government will look to divest. This move will enable the government to retain control over such firms.

This move was also suggested by Chief Economic Advisor Krishnamurthy Subramanian after presenting his Economic Survey 2018-19 on Thursday. “To be classified as a state-owned firm, instead of looking at the government retaining 51 per cent, you can perhaps look at 40 per cent of the government and 11 per cent by Life Insurance Corporation of India. That will get in more capital receipts. Divestment is expected to fill in some of the gaps in tax revenue,” he had said.

The government will further look for consolidation of PSUs, along with their strategic sale, in the non-financial sector. The finance minister further said that the government will encourage retail participation in CPSEs which, of late, has shown ‘very encouraging upward trend’.

“In order to provide additional investment space, the government will realign its holding in CPSEs, including banks to permit greater availability of its shares and to improve depth of its market,” said Sitharaman.

The government is eyeing big from the disinvestment of Air India this fiscal year and is looking to significantly relax terms for stake sales which were major roadblocks to attracting private sector interest in the airline. The government may even consider 100 per cent disinvestment of its stake in the airline.

At last year’s auction of Air India, the government had decided to retain 24 per cent in the airline, which was one of the primary reasons why it failed to generate any interest from buyers. Not a single buyer expressed interest in Air India, forcing the government to call off the sale.

The finance ministry is also counting on strategic sale in a number of state-owned companies as well as asset monetisation from land and property of various PSUs. The Department of Investment and Public Asset Management is in the process of appointing a panel of six transaction advisors who will help it with sale of non-core assets of PSUs.

In 2018-19, the government mopped Rs 80,000 crore through disinvestment receipts, according to the Revised Estimates. The government’s move to increase the disinvestment target is aimed towards reaching an ambitious fiscal deficit target of 3.3 per cent announced on Friday, instead of 3.4 per cent targeted earlier for FY20.