Finance Ministry Commits to Privatizing Previously Announced CPSEs in Upcoming Fiscal Year
- ByStartupStory | January 30, 2023
Sources indicate that the Finance Ministry intends to continue with its previously announced privatization plans for state-owned companies in the next fiscal year and there are unlikely to be any new additions to the list of CPSEs in the 2023-24 Budget. The disinvestment target outlined in the next fiscal year’s Budget is expected to be a more achievable and scaled-down version, as the current fiscal year is likely to mark the fourth consecutive year that the target for PSU sell-off will go unmet.
Currently, the government has budgeted to collect Rs 65,000 crore from disinvestment. However, so far, it has realized only Rs 31,106 crore by selling minority stakes in public sector companies.After tasting success in privatizing loss-making Air India in 2021, the progress of PSU sell-off has not been very impressive over the past year, and experts say that with the general election around the corner in 2024, no major disinvestment announcement is expected in this Budget either.
An official stated “The plan is to move ahead with the strategic sale of the companies for which the Cabinet approval is already in place,” This turns out as the government will go ahead with the privatization of companies like Shipping Corporation of India, NMDC Steel Ltd, BEML, HLL Lifecare, Container Corporation of India and RINL or Vizag Steel, as well as the big ticket IDBI Bank.
As we know that strategic sale or privatization takes at least a year, and in some cases even more, to conclude, a high budgeted disinvestment target may not be achievable.
Nangia Andersen LLP, Partner- Government and Public Sector Advisory, Suraj Nangia said: “The privatization process often takes time, depending on the type of privatization and the economic, social, and political context, emphasizing the importance of a medium-term plan, a solid regulatory framework, and competitive markets”.
He added “A multi-year strategic plan for privatization can be formulated to ensure there is a concrete timeline and a well-designed sequencing and strategy for privatization,”
According to EY India, Associate Partner, Tax and Economic Policy Group, Rajnish Gupta, the privatization programme may see an uptick after the 2024 general elections. Rajnish Gupta stated “Maybe this year’s Budget is going to be a little muted and we may see announcements around disinvestment and sale of minority stakes. After 2024, we may see an acceleration in the privatization programme again,”
In the previous year, the government had to cancel a few strategic sales, including BPCL, due to a lack of interest from investors. Experts believe that the private sector may be more inclined to purchase state-owned companies if the deals are made more attractive with tax incentives and regulatory exemptions. Nangia mentioned that private sector involvement would be more successful if the information provided, such as operating performance and asset conditions, is accurate.
Nangia added “”An important factor considered by investors as they decide on bidding in privatization programmes is a ‘predictable regulatory environment and absence of undue administrative impediments to business in general’. Other relevant factors include sufficient and accessible resources, including the presence of relevant infrastructure and human capital, tax incentives, financial subsidies and regulatory exemptions,”
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