Govt. concedes disinvestment stalled by multiple challenges

Source: The post is based on the article “Govt. concedes disinvestment stalled by multiple challenges” published in The Hindu on 31st March 2023

What is the News?

The Finance Ministry has publicly acknowledged the numerous challenges it is facing in its efforts to privatize public sector enterprises (PSEs) and raise funds through minority stake sales.

Note: Finance Ministry had reduced the government’s disinvestment target for 2023-24 to a nine-year low of ₹51,000 crore.

What is disinvestment?

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How has disinvestment progressed in recent years?

Disinvestment receipts so far this year amount to just ₹35,282 crores as opposed to a Budget target of ₹65,000 crore and revised estimates of ₹50,000 crores. 

The privatization of Central Electronics and Pawan Hans had to be scrapped after being announced, owing to legal concerns about the winning bidders.   

The proposed privatization of BPCL and a SAIL unit — Bhadrawati Steel – had been called off due to lack of sufficient interest among bidders. 

The privatization of two public sector banks and one general insurance firm, announced in the Union Budget two years ago, is also off the table for now. 

What are the key obstacles faced by the government in the disinvestment process?

External Challenges: The Finance Ministry has noted that the COVID-19 pandemic seriously impacted transactions in 2020 and 2021. It was followed by the Ukraine conflict last year.

– These events impacted minority stake sales as well as strategic sales as financial capacity and risk-reward options of potential bidders turned worse.

Internal Challenges: Strategic disinvestment transactions have to deal with matters such as: resolving land title, lease and land use issues with State government authorities; disposal of non-core assets, excess manpower and labour unions, protection of process and functionaries etc.

Employee Unions opposition: Multiple court cases filed by employees’ unions and other interest groups against the disinvestment policy as well as specific transactions were also hindering deals.

Challenges to disinvestment through minority stake sale include: 1) reduced availability of government stake over 51% for large listed central PSEs, 2) relatively muted perception of investors in these stocks, 3) price overhang in the market due to high disinvestment target and frequent use of exchange-traded funds (ETF) route for stake sale till 2019-20.