2016 marks the 25th year since disinvestment first began in 1991. In his Interim Budget speech on 24th July 1991, Dr. Manmohan Singh, then Finance Minister, said “It has been decided that Government would disinvest up to 20 per cent of its equity in selected public sector undertakings, in favour of mutual funds and financial or investment institutions in the public sector. The disinvestment, which would broad base the equity, improve management and enhance the availability of resources for these enterprises, is also expected to yield Rs. 2,500 crores to the exchequer in 1991-92.” In these 25years, disinvestment has been a huge disappointment, irrespective of which government was in power. Disinvestment receipts have exceeded budgetary targets in only four of twenty Budgets when targets were set. Since 1991, the total amount of money raised via disinvestment – at approximately Rs1.9L crores – pales in comparison to the ambitious aggregate target of Rs3.2L crores. For the past six years running, receipts have lagged targets with such regularity that underperformance now appears to be routine and accepted.
Data Source: Department of Disinvestment
Indeed, it appears that disinvestment targets are merely balancing figures to help meet the desired fiscal deficit target. Why even keep such a target that the Government has no intention of honoring? Scrap the target. This is not new. Recall that between FY06 and FY10, there were no budgetary targets set. Once this is done, the budgeted growth in tax revenues will look more realistic and the Government will send a clear message – disinvestment is not a priority. This is obvious since the Government has neither will nor intent of pushing through big-ticket PSU stake-sales. Indeed, as Shekhar Gupta recently articulated, the Prime Minister’s oft-repeated philosophy of “maximum governance, minimum government” should now read as "more government, but better government."
Indeed, it appears that disinvestment targets are merely balancing figures to help meet the desired fiscal deficit target. Why even keep such a target that the Government has no intention of honoring? Scrap the target. This is not new. Recall that between FY06 and FY10, there were no budgetary targets set. Once this is done, the budgeted growth in tax revenues will look more realistic and the Government will send a clear message – disinvestment is not a priority. This is obvious since the Government has neither will nor intent of pushing through big-ticket PSU stake-sales. Indeed, as Shekhar Gupta recently articulated, the Prime Minister’s oft-repeated philosophy of “maximum governance, minimum government” should now read as "more government, but better government."
This is sad because the performance of CPSEs remains dismal. Department of Public Enterprise data shows that return on capital employed (ROCEs) for CPSEs has nearly halved in the past decade. At 13%, this is probably at par or below their cost of capital – implying value destruction for shareholders (that’s us – the public of India).
Data Source: Department of Public Enterprises
Indeed it is ironical that the one, large, CPSE that the Government let go of – Maruti Suzuki – flourished after the Government exited it. Maruti retained its dominant position and even today remains India’s largest car company in a market that has almost every global auto major present. In comparison, once state-run monopolies MTNL and BSNL wilted in the face of private sector players as the telecom sector opened up to competition. India’s biggest CPSEs – like ONGC and Coal India – operate in resource-rich sectors. If the Government could let go of its presence in one public resource (telecom spectrum), surely it can reduce its presence in other public resources (oil, gas, and coal). However, with the recent fall in commodity and equity prices, this window of opportunity to sell large stakes in ONGC and Coal India might have closed. Finance Minister, Arun Jaitley, recently spoke of an “alternative method” for disinvestment which is currently awaited. Till then, the disinvestment target of Rs. 69,500 crores appears unrealistic in the face of receipts of merely Rs. 12,701crores so far.
With one month to go for Budget 2016, the question has to be asked – why even set a target for disinvestment? In its 25th year of existence, it is high time that disinvestment should either be revived aggressively or scrapped completely. The central path of muddling has achieved nothing for anyone.
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Anupam Gupta is a Chartered Accountant and has worked in equity research since 2000, first as an analyst and now as a consultant. He contributes to the Business Standard platform, Punditry, through his blog, Beyond Markets on markets & the economic horizons.
He tweets as @b50