Surpassing the disinvestment target to hit the Rs 1,00,000 mark was a big plus for the NDA government in this fiscal. It is a commendable feat for the Narendra Modi government that initially was not very aggressive in selling the family silver. Disinvestment secretary Neeraj Gupta has rightly pointed to the fact that average realisation through disinvestment annually was a meagre Rs 20,000 crore. In the exclusive interview with Financial Chronicle, Gupta had also surmised that on an aggregate, six to seven disinvestments happened on a yearly basis. Exceptions to this trend were witnessed in 2016-17 and 2017-18. It is also a fact that in a decade’s rule of the UPA, there were hardly occasions when the disinvestment targets were met fully.
Exceeding the disinvestment target was a result of valid reasons that provide significant lessons for the future. The protracted bull run in the first four years of NDA rule helped the government maximise value for the stake sale. Meticulous planning and timing the stake sale is yet another feature of disinvestments in the last two years. Given that 46 transactions were simultaneously in progress provides a rare glimpse of the perseverance with which disinvestments were being pursued by the government. In fact, it is the robust disinvestment realisation that allowed finance minister Arun Jaitley to keep the fiscal deficit at 3.5 per cent for this fiscal and target 3.3 per cent in 2018-19.
The turmoil and volatility in stock markets triggered by the US sell-off and long-term capital gains tax may make the going tough for 2018-19. Stability in markets with positive outlook for the near future is an important basis for successful disinvestment in the next financial year. The merger of four state-run non-life insurance companies is a good strategy for realising optimum value for these companies. Valuations derived by several private insurance peers should indicate the way forward for equity sale in state-run companies.
Divestment in 24 PSUs in difficult market conditions could be yet another challenge for the government. Most importantly, pursuing mergers and acquisitions should precede listing and stake sale in several of the government-owned banks.
However, the government should resist the temptation of ONGC-HPCL kind of deals to meet the disinvestment targets next fiscal. The transfer of government equity from one company to another does not tantamount to disinvestment. The ONGC-HPCL deal was not the first of its kind. P.Chidambaram and Vijay Kelkar pursued this strategy with regard to power and oil PSUs ten years back to skirt the market offering. The strategic sale of PSUs and banks, along with management control, could be considered a next step towards government withdrawing from business. Focusing on end use of disinvestment funds is an area on which Jaitley should articulate the government’s views. Protecting jobs of personnel from state-run companies and banks should be a priority of the government while pursuing an aggressive disinvestment strategy.