Budget 2024: CareEdge estimates divestment potential at ₹11.5 lakh crore for Indian government

In a recent report, CareEdge Ratings has estimated divestment potential at approximately ₹11.5 lakh crore for the Indian government at current market capitalisation. This estimation assumes the government retains at least a 51 percent stake in Central Public Sector Enterprises (CPSEs), allowing it to maintain governance control while divesting excess shares. 

CareEdge Ratings noted that this figure is more than double the total divestment of ₹5.2 lakh crore conducted since 2014. Of the potential ₹11.5 lakh crore, CPSEs could contribute around ₹5 lakh crore with Public Sector Banks (PSBs) and insurance firms potentially adding another ₹6.5 lakh crore. This represents the maximum amount that could be raised at current market prices without the government losing governance control, it said.

However, the report added that the government may not opt to divest all its potential shares. The decision to divest will likely be influenced by the strategic nature of the industry, company profitability, financial market conditions, and social or welfare considerations, it mentioned.

Rajani Sinha, Chief Economist at CareEdge Ratings, emphasised the need for a fresh divestment strategy after missing targets for five consecutive years. "The government over the medium term cannot rely solely on small ticket sales of minority shares by OFS (offer for sale) to meet its divestment target and should take a fresh look at big ticket divestment plans especially if the CPSE has been making losses consistently,” she stated.

Sinha added that the conclusion of the election season combined with the stock markets at all-time highs provide a perfect opportunity for significant divestment initiatives. However, past issues like procedural delays, litigations by labor unions, and pricing issues continue to hinder progress despite favorable market conditions.

The interim Budget revised the divestment estimate downward to ₹30,000 crore from the previously budgeted ₹51,000 crore. Data from the Department of Investment and Public Asset Management (DIPAM) showed that total divestment in FY24 fell short of even the revised estimate, achieving approximately ₹16,500 crore, which is about 32 percent of the initial target. The absence of big-ticket divestment resulted in this shortfall.

Looking forward, CareEdge believes that the government will maintain its divestment target at ₹50,000 crore in the upcoming Budget, similar to the interim Budget figure.

Achieving this target depends on the government's ability to proceed with large-scale divestments, it noted. After the demerger of land assets of the Shipping Corporation of India (SCI), its possible divestment looks likely in FY25, provided market conditions are favorable. If the government offloads its entire stake in SCI, it could generate ₹12,500-22,500 crore. Other potential divestments include Pawan Hans and CONCOR, although they remain delayed, said the report.

It further pointed out that with a substantial dividend from the RBI, the central government's fiscal position remains comfortable, which may reduce the urgency for big-ticket divestments. In case of delays, the government will continue to focus on asset monetisation.

CareEdge Ratings projects that the government will adhere to the FY25 target of ₹50,000 crore for miscellaneous capital receipts, which includes divestment. In FY24, the government monetised assets worth ₹1.6 lakh crore under the National Monetisation Pipeline, against a target of ₹1.8 lakh crore, added the report.

One must note that divestment is the process of selling off subsidiary business interests or investments. In the context of government and public sector enterprises, divestment refers to the sale of government-owned shares in these enterprises to private investors. This is often done to reduce fiscal burden, improve public finances, increase market efficiency, and stimulate private investment. Divestment can involve partial or full sale of the assets, allowing the government to retain some control or relinquish it entirely depending on the strategic goals.

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