Multiple challenges stall government’s disinvestment plans acknowledges government.

The Finance Ministry has reduced the government’s disinvestment target for 2023-24 to a nine-year low of ₹51,000 crore. The Ministry has acknowledged the challenges it faces in privatizing public sector enterprises (PSEs) and raising funds through minority stake sales. The disinvestment process has slowed down since the sale of Air India.

The Ministry has outlined key obstacles to the disinvestment process. The COVID-19 pandemic seriously impacted transactions in 2020 and 2021. The Ukraine conflict last year hurt minority stake sales as well as strategic sales. The financial capacity and risk-reward options of potential bidders turned worse due to the conflict.

The Ministry stated in its annual report for 2022-23 that strategic disinvestment transactions face various challenges. These challenges include resolving land title, lease, and land use issues with State government authorities, disposing of non-core assets, dealing with excess manpower and labor unions, and protecting process and functionaries.

Additionally, multiple court cases filed by employees’ unions and other interest groups against the disinvestment policy and specific transactions are hindering deals. These issues can impact the transaction timeline.

The disinvestment process through minority stake sale faces several challenges. This includes reduced availability of government stake over 51% for large listed central PSEs, investors’ relatively muted perception in these stocks compared to private sector peers, price overhang in the market due to a high disinvestment target, and frequent use of exchange traded funds (ETF) route for stake sale till 2019-20.

Between 2016-17 and 2019-20, the government raised around ₹99,000 crore from ETFs with underlying shares of CPSEs.

However, disinvestment receipts for this year are only ₹35,282 crore, falling short of the budget target of ₹65,000 crore and revised estimates of ₹50,000 crore.

Additionally, the privatisation of Central Electronics and Pawan Hans had to be abandoned after being announced due to legal concerns about the winning bidders.

In 2022-23, only one strategic sale was completed: Neelachal Ispat Nigam Ltd. (NINL) was sold to a Tata group firm. NINL was a joint venture between four CPSEs and two State PSEs from Odisha, with no direct Government of India holding.

The proposed privatisation of BPCL and a SAIL unit, Bhadrawati Steel, has been called off as there wasn’t enough interest from bidders. Additionally, the planned sale of Engineering Projects India and Bridge and Roof Company (India) has been deemed unfeasible for this year. The privatisation of two public sector banks and one general insurance firm, which were announced in the Union Budget two years ago, are also no longer on the table.

Instead, the government’s focus in 2023-24 will be on concluding transactions that are already in progress. These include IDBI Bank, NMDC Steel, Concor, Shipping Corporation of India, and BEML.

Since 2020, there has been a pause in ETF issuances because there aren’t enough stocks available for sale. This has raised concerns that large and repeated tranches of equity ETF were acting as a disincentive for investors in public sector stocks due to price overhang.