Finance Minister Nirmala Sitharaman unveiled the interim Budget of the Modi-led NDA government 2.0 for the fiscal year 2024-25 on February 1st, Thursday. Nevertheless, in her sixth Budget speech, the finance minister refrained from mentioning the disinvestment target for the upcoming fiscal year, as she did in the previous year. Nonetheless, documents released later on the Finance Ministry’s website disclosed that the government has established the disinvestment target at Rs 0.50 lakh crore for the upcoming fiscal year.

 

Initially coined by Yashwant Sinha, the then finance minister in the Chandra Shakar government, the term ‘disinvestment’ surfaced in his interim Budget of 1991 to denote the privatization of the central public sector enterprises (CPSEs) in light of the severe economic conditions prevailing at that time. Subsequent administrations continued this initiative to alleviate the fiscal burden of the government and maintain the fiscal deficit. The Modi government has also vigorously pursued this path. On February 1, 2021, the government unveiled a strategic disinvestment policy, charting a clear course for the privatization of strategic and non-strategic CPSEs.

 

The primary aim of the policy was to utilize the proceeds from disinvestment to fund various social sector and developmental programs, as well as to inject private capital, technology, and optimal management practices into CPSEs. This has been a pivotal element of both the budgets under the Modi-led government 1.0 and government-2.0.

However, given the current economic climate, the progress of the government’s policy regarding the proceeds from the privatization of CPSEs cannot be deemed satisfactory. Let’s delve into the disinvestment receipts from the fiscal year 2014-15 vis-à-vis the Budget targets and revised targets set by the government through the Budgets.

 

Comparison of Budget 2024 and Expectations Fiscal Deficit Target For FY24, the Revised Estimate (RE) stood at 5.8% of GDP, slightly below the estimated range of 5.9% of GDP. For FY25, the target is set at 5.1% of GDP, with estimates ranging from 5.2% to 5.3% of GDP.

 

Capex Target The Budget Estimate (BE) for FY25 is Rs 11.11 lakh crore, with estimates ranging from Rs 11 lakh crore to Rs 11.5 lakh crore. Realization from FY15 to FY24 The government has realized Rs 4.33 lakh crore from the fiscal year 2014-15 to 2023-24, amounting to 45.6% of the Budget Estimate of Rs 9.48 lakh crore and 80.5% of the Revised Estimate of Rs 5.37 lakh crore. Over the past decade, the Budget Estimates have been met only twice – in FY18 and FY19. However, the realized amount exceeded the Revised Estimates by five times. Owing to the failure to achieve the target, the government revised the Budget Estimate eight times, increased it once in 2017-18, and left it unchanged once in 2018-19.

Realization in FY24 So Far The disinvestment target for the fiscal year 2023-24 was reduced to Rs 0.51 lakh crore, which was 21.5% lower than the budget estimate and two percent higher than the revised estimate for the fiscal year 2022-23. Nevertheless, the government has only realized Rs 0.13 lakh crore from stake sales through Initial Public Offerings (IPOs) and Offer for Sales (OFS) in various CPSEs thus far, accounting for 24.52% of the budget estimate.

 

The government has successfully concluded transactions, realizing Rs 4185 crore from Coal India, Rs 1366 crore from RVNL, Rs 1349 crore from SJVN, Rs 2453 crore from NHPC, and Rs 1050 crore from HUDCO. Owing to a shortfall in disinvestment receipts, the government has revised the disinvestment target to Rs 0.30 lakh crore from the initially projected Rs 0.51 lakh crore. This reflects the challenges encountered in achieving the initial objective. Data indicates that geopolitical constraints have not only impacted the global economy but have also affected the Indian disinvestment program.

The success of disinvestment hinges largely on market conditions. Additionally, procedural delays, political opposition, employee protests, and market conditions have contributed to the shortfall in disinvestment proceeds. However, market conditions alone cannot be held accountable for this shortfall, as evidenced by the surge in IPO activity on Dalal Street in the latter half of the current fiscal year.

 

The week ending November 24 witnessed heightened activity in the primary markets, with five IPOs seeking to raise Rs 7,377 crore. The success of five initial public offerings (IPOs) in the previous fiscal year, particularly in the primary market, underscores the government’s failure to capitalize on the situation. Consequently, the government’s strategic disinvestment agenda has fallen short of the disinvestment target set since the fiscal year 2018-19 and revised target since the fiscal year 2020-21.

 

In summary, the decline in disinvestment proceeds cannot be attributed solely to geopolitical tensions or adverse market conditions. Indeed, according to media reports, the government itself has been reluctant to expedite the privatization process in an election year. Following the general elections, we may witness an acceleration in the privatization program.