Union Budget 2018: Divestment Target Raised To Rs 80,000 Crore

The Indian government set a target of raising Rs 80,000 crore in 2018-19 by selling stake in state-owned assets after exceeding its record divestment target in the previous year.

The strategic divestment of 24 Central Public Sector Enterprises has been planned, Finance Minister Arun Jaitley said in his budget speech. The government will also launch Infrastructure Investment Trusts (InvITs) for the monetisation of select state-run companies, he said.

• The plan also includes the introduction of debt exchange-traded funds, which comes after the success of the CPSE ETFs and Bharat 22 ETFs.
• National Insurance Company, United Insurance Company, United India Assurance and Oriental Insurance will be merged into a single entity and listed on the exchanges as part for the divestment programme.

The debt ETF would be used to aggregate the borrowings of 15 CPSEs, which in turn will provide higher liquidity and help bring down costs, Divestment Secretary Neeraj Kumar Gupta told BloombergQuint. The CPSEs have raised around Rs 3 lakh crore over the last three years from the bond markets, which is around 34 percent of the fixed income bonds, he said. Of the 15 CPSEs, 12 are AAA-rated bonds, which is the top investment grade, he said.

India has only on a few occasions met the divestment target set in the budget. In most cases, targets were scaled down later in the year. In 2017-18, however, the government surpassed the ambitious Rs 72,500-crore estimate. As a result, the divestment target for the current financial year ending March has been raised to Rs 1 lakh crore, Jaitley said.

That’s largely due to the attempt to create a state-owned integrated oil giant. The government sold its majority stake in refiner Hindustan Petroleum Corporation Ltd. to Oil and Natural Gas Corporation Ltd. for over Rs 36,000 crore—a deal which the explorer is funding through short-term loans from seven lenders. The higher-than-estimated selloff is expected to rein in the country’s fiscal deficit in a year when indirect tax collections are lower due to the Goods and Services Tax rollout.

Apart from the ONGC-HPCL deal, the government also reduced its stake in several state-run companies during the financial year, including Hudco, Engineers India Ltd., NTPC Ltd., National Aluminium Company Ltd. and Oil India Ltd. State-owned General Insurance Corporation Ltd. and New India Assurance Ltd. were listed on stock exchanges.

National carrier Air India's divestment is on the cards next. The airline roped in SBI Capital Markets Ltd. to advise on the future course in November and has constituted five teams to work on various aspects of the stake sale. On June 28, the Cabinet Committee on Economic Affairs had given its in-principle nod for the strategic disinvestment of Air India and five of its subsidiaries. Subsequently, an Air India-specific Alternative Mechanism was set up to guide the process.