Budget 2022 Survey: Disinvestment target to be missed most likely, but can LIC IPO still save the day?

Following the trend of previous years, the Ministry of Finance is expected to miss the target of of Rs 1.75 lakh crore for budgeted stake sale in public sector companies and financial institutions. However, the gap may narrow if the much awaited LIC IPO flows are realised within the last quarter of FY 2021-22.

Finance Minister Sitharaman approved the policy of disinvestment of PSUs including the IPO of LIC in the last budget.The government is expected to provide an update on the IPO while presenting the budget on February 1. (File Photo: Reuters)

The government will most likely miss its disinvestment target of Rs 1.75 lakh crore for the current fiscal year 2021-22 when Finance Minister Nirmala Sitharaman presents the budget next week, a survey of economists and analysts conducted by Financial Express Online showed. “It is increasingly unlikely that the Government of India (GoI) will be able to meet its disinvestment target of Rs 1.75 trillion in FY2022, even if the LIC IPO flows are realised within this quarter, given the low collections below Rs 100 billion so far,” Aditi Nayar, Chief Economist at ICRA Ltd, said.

Fire sale of critical PSUs not desirable

Following the trend of previous years, the Ministry of Finance is expected to miss the target of budgeted stake sale in public sector companies and financial institutions. However, undertaking fire sale of critical public sector firms is not desirable, R Nagaraj, Professor of Economics at Indira Gandhi Institute of Development Research said. “Disinvestment in large and strategically important PSUs is a difficult task. It may not be desirable or to undertake fire sale of critical PSUs for short term fiscal considerations,” he said.

On the other hand, N R Bhanumurthy, Vice-Chancellor at Ambedkar School of Economics University, remained more optimistic than others on LIC IPO getting through this fiscal year, even though he pointed out that disinvestment should not be tied up with the April-March dates or the financial year dates. One of the major items for disinvestment in the government’s basket is LIC and they have already started the process which is going at a much faster pace than other items, he said. “I am wishing that it will happen this year before 31st March. And if that happens, I think they will exceed their disinvestment target. So, it all depends on how the LIC is going to be played out,” Bhanumurthy added.

Disinvestment target plan may spill over to next fiscal

Most of the experts surveyed echoed the view that the current year disinvestment plan may spill over to the next financial year, however the gap may narrow if the much awaited LIC IPO flows are realised within the last quarter of FY 2021-22. The government is expected to see a shortfall of about Rs. 50,000 cr in its disinvestment targets, according to Rahul Bajoria, Chief Economist, India at Barclays. According to Upasna Bhardwaj, Senior Economist at Kotak Mahindra Bank, government is expected to undershoot the divestment target by Rs 75,000 crore.

Finance Minister Sitharaman approved the policy of disinvestment of PSUs including the IPO of LIC in the last budget. The government is expected to provide an update on the IPO while presenting the budget on February 1. 

”Last year the total mobilisation under disinvestment was Rs 38000 crore against the target of Rs 2.1 lakh crore. This year the total mobilisation has been only Rs 9300 crore (till Nov’21) against the target of Rs 1.75 lakh crore. Thus, it is less likely that the government will be able to meet the disinvestment target of Rs 1.75 trillion. We can expect the disinvestment target to range at Rs 1.5-1.7 lakh crore (for the next FY2022-23), similar to FY22,” Dhananjay Sinha, MD & Chief – Strategist at JM Financial Institutional Securities, said.

Madhavi Arora, Lead Economist at Emkay Global said that disinvestment targets will remain contingent on what happens with the LIC IPO. “The government would possibly miss on ambitious divestment targets even if we assume a mega LIC IPO/divestment with ~Rs750bn money raising by March-end,” she added. 

“While LIC IPO can still happen with last minute push, provided markets remain favourable, BPCL divestment could in all probability get postponed to next year,” Deepak Jasani, Head of Retail Research at HDFC Securities said in the survey.

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