Union Budget 2021: Govt to privatise two PSBs and one general insurer

Reiterating the government’s intention on privatisation, Finance Minister Nirmala Sitharaman said on Monday that two public sector banks (PSBs) and one general insurance company will be privatised.

The government will introduce legislative amendments to privatise these banks in the current Budget session. Of the Rs 1.75 trillion divestment target set for the next fiscal, the government expects Rs 1 trillion to come from divestment of its stake in PSBs and financial institutions.

The Budget has also laid the road map for overhauling public sector enterprises with the announcement of the broad details of the privatisation policy.  The policy classifies CPSEs, banks, and insurance companies into four strategic areas —atomic energy, space, and defence; transport and telecom; power, petroleum, and other minerals; and, banking, insurance and financial services.

In all other sectors, PSUs will be either privatised or closed. There were about 249 PSUs in 2018-19, of which 70 incurred losses of Rs 31,635 crore, according to data from the Standing Conference of Public Enterprises. The decision to privatise two PSBs and one insurance firm underlines government’s commitment to limit its presence even in strategic sectors, industry body FICCI said in a press release.

Divestment target slashed

The government has slashed its divestment target sharply for the current fiscal as the Covid-19 pandemic marred the exercise. The divestment receipt for the current fiscal has been revised to Rs 32,000 crore from Rs 2.1 trillion estimated earlier.

This is because a number of transactions – namely Bharat Petroleum Corporation, Air India, Shipping Corporation of India, Container Corporation of India, IDBI Bank, BEML, Pawan Hans, Neelachal Ispat Nigam, among others – will be completed in 2021-22.

SPV for asset monetisation

The government will set up a special purpose vehicle (SPV) that will carry out monetisation of surplus land holdings of public sector companies and government departments.

“Monetising of land can either be by way of direct sale or concession or by similar means,” Sitharaman said. This requires special abilities, and a SPV in the form of a company would carry out this activity, she said.

To enable transfer of surplus land to the SPV, the government has introduced section 8G to the Indian Stamp Act through which such a transfer will not be liable to stamp duty, said Sandeep Shah, managing partner at NA Shah Associates.

Strategic divestment

To accelerate divestment, NITI Aayog will be asked to work on the next list of PSUs that can be taken up for strategic disinvestment. The central government will also incentivise states to divest their public sector companies.

The government will also come up with a revised mechanism for timely closure of loss-making PSUs.

The government will also relax the condition for carrying forward of loss for divested PSU in amalgamation. Transfer of PSUs assets to another firm has also been made tax neutral.

A disciplined disinvestment glide path would help the government mitigate the pain of a burgeoning fiscal deficit, while giving private entrepreneurs the opportunity to increase productivity of CPSEs, said Nischal Arora, partner, Nangia & Co. “Given the expansionary mode of government expenditure, this assumes an even greater relevance than ever before,” he said.

Govt will not pare its stake in LIC below 51%

The government will retain majority shareholding in Life Insurance Corporation of India “at all times”, it has said in the Finance Bill.  The proposed amendments to LIC Act state that “at all times” the government would own 51 per cent in the India's largest insurer, said Sandeep Shah, managing partner at NA Shah Associates. This comes ahead of the planned IPO that’s considered to be India’s largest public offering. During the period of five years from divestment, the government will hold not less than 75 per cent of issued capital of LIC, meaning it would dilute up to 25 per cent in the insurer.