Govt may set Rs 1 trillion disinvestment target in Budget for FY21

The government is likely to set Rs one trillion target from disinvestment in the Budget for 2020-21, Rs 0.1 trillion lesser than what was decided for FY20.

“The government is likely to bring down their stake in certain public sector undertakings (PSUs) to below 51 per cent. In the absence of the BPCL disinvestment not going through in FY20, it would be the major sale in FY21 along with Air India. Additionally, they may announce policies/measures for the monetization of assets of public sector entities. Such a measure would  mean  creating a framework for asset monetization which involves the structures to be followed like auctioning or any other kind of bidding process”, a report on Budget expectations by CARE Ratings said.

Over and above Air India and BPCL, the planned divestment of Container Corporation of India Ltd (Concor) and the launch of a financial Exchange Traded Fund (ETF) to monetize government stakes in banks and public sector financial institutions is in the offing. That apart, the government is contemplating strategic stake sales in other PSUs like heavy mining equipment maker BEML Ltd, Projects India and Pawan Hans. 

In order to spur economic growth, the government could incur higher expenditure in 2020-21 given that domestic economic growth in recent times has been largely led by government/public spending amid subdued private consumption and investment. This would require the government to reconsider the fiscal consolidation roadmap of bringing down the fiscal deficit  to  three per cent  of  GDP  by  2020-21.

"The intended fiscal consolidation plan would have to be pushed forward to later years when domestic economic growth picks up. With revenue collections being lower than expected due to weakness in economic growth, the central government is most likely to breach the gross fiscal deficit target of 3.3 per cent of GDP for 2019-20 by 0.6-0.8 per cent which would essentially take the revised fiscal deficit to 3.9-4.1 per cent of GDP for the year”, the report noted.

In the forthcoming Budget for 2020-21, the capital expenditure which on an average accounts for 13 per cent of total expenditure would see an increase from Rs 3.38 trillion to around  Rs four trillion. The increased capital expenditure would be towards infrastructure projects  viz. those that have been detailed in the National Infrastructure Pipeline (NIP). Nearly 40 per cent of the capital expenditure (Capex) is expected to  be towards the rail and road transport sectors. Housing and urban development is the other important component with share of around six per cent.