The new National Democratic Alliance (NDA) government will have a realistic disinvestment strategy, devoid of chasing any specific target for privatisation of large firms, official sources told FE. It will, however, seek to keep the pace of minority stake sales in central public sector enterprises (CPSEs), as and when market opportunities throw up.

In 2021, the Centre unveiled the CPSE policy under which the government will have a minimum presence in the four strategic sectors, while the remaining ones could be privatised, merged or closed. The strategic sectors are atomic energy, space and defence; transport and telecommunications; power, petroleum, coal and other minerals; and banking, insurance and financial services. In the non-strategic sector, all CPSEs will be privatised or closed in case privatisation is impossible.

However, the (low) incidences of CPSE stake sales since then haven’t been exactly in consonance with the policy announcement. Market realities have been one reason for the reduced pace of disinvestment, as much as political considerations.

In the interim budget for 2024-25 in February, the Bharatiya Janata Party spelt out a holistic approach towards CPSE capital management that included value creation, asset monetisation, dividends, capital expenditure, besides disinvestment.

Accordingly, the government set a Rs 50,000 crore target for FY25 as “miscellaneous capital receipts” by clubbing disinvestment and asset monetisation. For the first time in many years, there wasn’t any specific target for disinvestment.

As against the initial budget estimate of Rs 51,000 crore in FY24, the disinvestment receipts were Rs 16,507 crore or 0.37% of the Centre’s budget size, as some strategic disinvestments including that of IDBI Bank did not materialise.

Strategic disinvestment of IDBI Bank, jointly owned by the government with promoter Life Insurance Corporation, was originally planned to be concluded in FY24. The transaction progress in FY25 after the Reserve Bank of India gives ’fit-and-proper’ clearance to the shortlisted bidders. RBI is still examining the proposals received.

While the government will pursue the existing pipeline of strategic sales including that of IDBI Bank, NMDC Steel and Shipping Corporation of India, the government will continue with offers for sales (OFS) of minority stakes, which could be carried out quickly, sources said.

In OFS also, the government has adopted the strategy of maximising revenues for the exchequer by opting for smaller stakes sales (compared to earlier transactions) to gain from the upsides in market valuation of CPSE stocks, some of which doubled in a little more than a year. In other words, the government is mobilising more revenues even with smaller OFSs in CPSEs than it used to raise through relatively bigger OFSs, keeping the window open to come with more such offers when valuation rises even further.

The market capitalisation of 60-dd listed CPSEs increased 2.5 times from Rs 16.69 trillion on March 31, 2023 to Rs 42.4 trillion now. It has benefited the government and minority shareholders equally.

Some of the potential OFS by the government in FY25 may include companies such as Vedanta Group firm Hindustan Zinc and state-run GIC Re. The Centre’s 29.54% stake in HZL is worth over Rs 81,000 crore at the current market prices. Similarly, the likely OFS GIC will help the company meet the minimum public shareholding norm of 25%. Currently, the Centre owns 85.78% of GIC.

In 2021, the Centre unveiled the PSE policy which entailed that the government has a minimum presence in the four broad sectors while the remaining ones can be privatised, merged or closed. These sectors are atomic energy, space and defence; transport and telecommunications; power, petroleum, coal and other minerals; banking, insurance and financial services. In the non-strategic sector, all CPSEs will be privatised or closed in case privatisation is impossible.