Stake sales in the Maharatna firms — namely IOC, NTPC, BPCL and GAIL — could happen either through the OFS or ETF route; strategic sale of at least one of them is also on the radar. In all these CPSEs, the Centre’s stake is now below 55%.
With its tepid revenue growth resulting in higher reliance on non-tax revenue, the Centre has drawn up a plan to bring down its stakes in a clutch of large central public sector undertakings (CPSEs) to below 51% in FY20. Stake sales in the Maharatna firms — namely IOC, NTPC, BPCL and GAIL — could happen either through the OFS or ETF route; strategic sale of at least one of them is also on the radar. In all these CPSEs, the Centre’s stake is now below 55%.
Other CPSEs in which the government might reduce stakes as per the policy laid out in the Budget FY20 are Engineers India, Container Corporation (ConCor) and Nalco.
The Centre’s disinvestment target for the current fiscal is Rs 1.05 lakh crore. So far, it has raised only Rs 12,357 crore or 12% of the annual target.
Faced with a lack of headroom to garner non-tax revenues from stake sales in listed CPSEs, the Centre announced in the Budget to bring down its direct holding in non-financial firms to below 51%. In many of these firms, the Centre can still can retain a majority stake, inclusive of the stakes held by government-controlled institutions such as LIC in them and CPSE cross holdings.
The Centre mobilised a record Rs 1 lakh crore in FY18 and Rs 85,000 crore in FY19 from disinvestment of its stake in various companies, but some of its sheen was taken away by the fact that CPSE-CPSE deals (ONGC-HPCL and PFC-REC) and stake purchases by LIC played a major role in boosting the receipts. FE has estimated that if the government brings down its stake to 26% in seven large CPSEs (see chart), it could garner about Rs 1.2 lakh crore at current market prices.
The objective of the change in disinvestment policy is that the government could bring down gradually its stake in many non-strategic CPSEs o 26%. In 1997, the Disinvestment Commission recommended such a strategy (it identified firms in defence equipment, atomic energy, and railways were strategic), which was followed to an extent by the Atal Bihari Vajpayee government (1999-2004). The Vajpayee government sold more than a dozen CPSEs to private companies, the most notable ones being IPCL, which was sold to Reliance Industries, and Bharat Aluminium Company and Hindustan Zinc, both of which went to Vedanta Resources. In the current scenario, the options are not limited to strategic sales alone as other modes such as exchange traded funds (ETFs) are also an effective tool for the government to dilute its stake in the firms. ETFs, which invested in CPSE stocks, contributed a record Rs 45,080 crore or 53% of the disinvestment receipts in FY19.