Disinvestment Has Not Contributed To Budgetary Revenue
The word disinvestment is being hyped by the economists, particularly government economists though it has not contributed to the budgetary revenue in the past twenty years significantly. Disinvestment in oil companies is particularly a difficult proposition as it is very much regulated in India and not based on the market rules. In the last twenty years, disinvestment had contributed Rs.113031 crore as against total tax arrears of Rs.144915 crore. The government had set a target of Rs.40000 crore in last year’s Budget towards disinvestment. But the disinvestment target had not been met. The government of India’s total expenditure for this year amounts to Rs.13 trillion. As against this, disinvestment proceeds looks like a drop in the ocean.
Will Spectrum Sale Fetch The Government Sizeable Amount?
The government had planned that disinvestment and spectrum sale would fetch it Rs.70000 crore. The government’s hopes had stemmed in from the fact that the Supreme Court had cancelled out the 122 telecom licences issued by Raja. Pranab Mukherjee, the erstwhile Finance Minister and now President of India had hoped to garner Rs.40000 crore from the spectrum sales. The government had failed to arrive at a consensus with regard to selling its stakes in government companies like BHEL and ONGC. The government could get only Rs.1145 crore by disinvesting its stake in Power Finance Corporation. A 5% disinvestment in ONGC could fetch the government of India Rs.12000 crore. BHEL disinvestment could bring in another Rs.5000 crore. Last year the government had raised Rs.22500 crore through disinvestment in PSUs.
There are two options open to the government with regard to disinvestment. It can opt for buy-back of shares or opt for off-market deals. In buy-back option, the government can raise sizeable amount even in depressed market conditions. It will fetch the government a premium to the existing market price. The sale can be structured in tender offer routes that are quite transparent. For the investors also it is an advantageous one. This is because they can realise higher price than the prevailing market price. For the post buy-back holding, there will be value enhancement for the investors.
Disadvantages in Buy-Back Route
But there are also disadvantages in this route. First of all, it cannot be predicted that the general public will come out with a good response. Next, buy-back should be supplemented with capital expenditure plans of the company. So far no public sector enterprise has used the buy-back route for raising money in the market. The government of India is keen to retain 51% of its holding in the PSUs while opting for disinvestment. In case of ONGC, the government of India came very close to going for the Follow-on Public Offer (FPO) before retreating. The same is the case with regard to companies like SAIL, Hindustan Copper etc.
Tinkering With STT Will Not Help the Government
Earlier, the finance minister Pranab Mukherjee had called for a total rejig of the Indian government’s disinvestment plans. Desperate times invite for desperate measures. The government wanted to cut securities transaction tax and reinvigorate the market in favour of disinvestment. But the big question is whether the market will response to the government’s initiatives. The securities transaction tax is very miniscule compared to the total volume of the securities traded in the stock exchanges. But the STT is a direct tax which can be changed only at the parliament’s nod.
Political Opposition from Allies Retard Disinvestment
As an alternative, the government wants to push NBCC and Hindustan Aeronautics into the market. It also has plans to prompt cash-rich PSUs to buy the shares of other PSUs. But all these steps had been tried in the past without much success. Bold reforms are lacking because of political opposition from the allies of the UPA. Reforms that could stir the market are permitting foreign investment in multi-brand retail, increase in FDI (Foreign Direct Investment) limit in the insurance sector and relaxing rules in favour of FIIs. In the absence of such bold measures, the government is unlikely to taste success in disinvestment in the current year also.
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