Budget 2022: Divestment target for FY23 set at a modest Rs 65,000 crore

FY22 divestment mop up revised to Rs 78,000 crore from Rs 1.75 trillion pegged earlier

Breaking from its tradition of last three years of setting ambitious divestment targets, the Centre has pegged the next year’s target at a conservative Rs 65,000 crore. 

The divestment target for the current financial year has been slashed by over 55 per cent to Rs 78,000 crore as its big ticket privatisation proposals have seen a delay, now pinning on the listing of Life Insurance Corporation of India (LIC) to meet the revised target.

“Keeping a high divestment target, sometimes distorts the market,” said Department of Investment and Public Asset Management (DIPAM) Secretary Tuhin Kanta Pandey said. “Nothing stops us from achieving what we want to achieve in disinvestment. Ongoing transactions will be carried out,” he added.

Pandey said with revised estimates at Rs 78,000 crore, one should not conjecture on the size of the LIC IPO as valuation of the insurer is yet to reach a conclusion. 

The government has not included entire estimated proceeds from LIC IPO as it is market sensitive information, Finance Minister Nirmala Sitharaman told reporters.

As the Department of Investment and Public Asset Management (DIPAM) has realised Rs 12,030 crore during the current financial year 2021-22, this means the Centre is expecting a minimum of Rs 66,000 crore from the IPO of LIC. However, actual receipts from the LIC IPO, touted to be India’s largest, would depend on the offer size the government finalises, and the market conditions.

For the next year as well, the government has set an achievable target of Rs 65,000 crore even as it expects completion of big ticket privatisation of Bharat Petroleum Corporation (BPCL), and Shipping Corporation of India (SCI), among others.

The government has also not estimated any receipts from “disinvestment of government stake in public sector banks and financial institutions” for the ongoing and the next fiscal year. Pandey, in the post Budget press conference, said that this time a separate entry has not been made as it doesn’t matter where the divestment proceeds are coming from.

The receipts from disinvestment of government stake in public sector banks and financial institutions had been estimated at Rs 1 trillion for this financial year.

The government, while targeting Rs 1.75 trillion receipts for this year, had expected completion of big ticket privatisation proposals such as Bharat Petroleum Corporation (BPCL), Shipping Corporation of India (SCI) and launch of the LIC IPO. However, the second and the third wave of Covid-19 pandemic has led to procedural delays and made investors jittery.

The downward revision of disinvestment target for FY22 should make it achievable with LIC IPO expected to be launched soon, said Sandeep Shah, managing partner at NA Shah Associates LLP.

“It would be interesting to see whether government is contemplating downsizing the size of LIC IPO as early estimates were that more than Rs 1 trillion will be raised from the listing of the insurer. Currently there are no indication that valuations are a matter of concern,” Shah said.