The FY24 Union budget projected a target of ₹51,000 crore through the sale of government shares in public sector companies. However, it appears improbable that significant new additions will be included in the divestment roster for FY25.
Government’s Divestment Target Likely to Decline for FY25, Say Sources
The government is contemplating a divestment target for the upcoming fiscal year that is expected to be at least 20% lower than the current year’s estimate, as per sources familiar with the matter.
The Union budget for FY24 projected an amount of ₹51,000 crore to be raised through the sale of the government’s shares in public sector companies. It appears unlikely that any significant new additions will be made to the divestment list for FY25, according to sources who spoke on the condition of anonymity.
Commenting on this, one of the aforementioned sources stated, “For FY25, the divestment targets are anticipated to be reduced compared to the FY24 target. The focus will be on completing stake sale processes initiated during FY24.”
As of 3 January, the government had only garnered approximately ₹10,050 crore through various divestments, indicating a probable shortfall in meeting the year’s target.
The sources further expressed their views, noting, “Since 2014, disinvestments worth over ₹3 trillion have been carried out. The easily achievable disinvestments have been accomplished, and now public sector units should be brought to the market when there is demand and confidence that the offerings will be taken up.”
Notably, a spokesperson for the finance ministry did not respond to emailed queries regarding this development.
Currently, eight strategic disinvestments are in various stages, including IDBI Bank Ltd, BEML Ltd, Shipping Corp. of India Ltd, HLL Lifecare Ltd, Projects & Development India Ltd, Indian Medicines Pharmaceutical Corp. Ltd, and Ferro Scrap Nigam Ltd. While the government is yet to solicit expressions of interest for Container Corp. of India Ltd, there are no plans to recommence the disinvestment process of Bharat Petroleum Corp. Ltd.
Balancing Disinvestments and Non-tax Revenues
Most of the divestments are yet to make progress, and may spill over to the next fiscal year. Other likely candidates for divestment during FY25 are Rashtriya Ispat Nigam Ltd (RINL) and some subsidiaries under AI Assets Holding Ltd.
However, despite the slow progress in divestments, the government anticipates that higher non-tax revenues, including dividends from the Reserve Bank of India (RBI) and state-run banks, will offset the revenue shortfall from disinvestments, thus maintaining the fiscal deficit target of 5.9% of gross domestic product (GDP) for FY24, as indicated by an official source.
In FY24, the government amassed ₹43,843 crore as dividends from central public sector enterprises, surpassing the budget estimates of ₹43,000 crore. This marks the second consecutive year of dividend collections exceeding estimates, with nearly ₹59,000 crore received from central public sector enterprises compared to the targeted ₹40,000 crore for FY23.
According to the first official, the sluggish pace of disinvestment may not significantly impact the government, given the higher-than-expected dividend income from central public sector enterprises. This increase is attributed to the improved performance metrics of the public sector units and the Centre’s policy change, which now entails dividend return every quarter, as opposed to a single return at the end of the financial year.
N.R. Bhanumurthy, vice-chancellor of Dr B.R. Ambedkar School of Economics University, Bengaluru, expressed, “The government will likely pursue more challenging divestments, prompting a realistic reassessment of the divestment target.”
He went on to state, “On the fiscal deficit front, the government is expected to surpass the targets for FY24, benefiting from higher-than-expected non-tax revenues and adherence to budgeted expenditure. This positive trend is anticipated to persist in FY25.”
Boost in Non-Tax Revenue Projected for FY24
The anticipated non-tax revenue for FY24 is ₹3,01,650 crore, marking a substantial 15.2% increase from the revised estimate of FY23. This includes interest receipts totaling ₹24,640 crore, dividends amounting to ₹91,000 crore, and other non-tax revenue of ₹1,81,382 crore.
Dividends and Other Non-Tax Revenues
During FY23, the Reserve Bank of India (RBI) transferred dividends of ₹87,416 crore to the government. Furthermore, publicly traded state-run banks contributed an additional dividend of approximately ₹13,800 crore during the same period.
Strides in Strategic Disinvestment
Since 2016, the government has granted “in-principle” approval for the strategic disinvestment of 36 cases involving public sector enterprises and government-owned companies.
In FY24, the government exceeded expectations in non-tax revenue collection, attributing the boost to increased dividends from both the RBI and state-run banks. This growth is projected to continue into FY25, indicating a positive trend in the government’s revenue outlook. The upcoming fiscal year is expected to witness a stronger focus on divestments, with the inclusion of potential candidates such as Rashtriya Ispat Nigam Ltd (RINL) and select subsidiaries under AI Assets Holding Ltd. This strategic approach aims to ensure that the government sets and attains more realistic divestment targets while capitalizing on the improved performance of public sector enterprises.
In conclusion, the government’s pursuit of tougher divestments and the anticipation of sustained growth in non-tax revenue paint a promising picture for the fiscal landscape. This proactive approach positions the government to potentially overachieve on the fiscal deficit front in the coming years, a prospect that garners cautious optimism from financial experts.
