Ambitious divestment target in the budget
In the period of 12 months starting April 17, the government hopes to raise Rs 72,500 crore from a three-fold divestment plan for Public Sector Undertakings (PSU).
In the budget speech, Finance Minister Arun Jaitley said the divestment target for financial year 2017-18 comprises selling off shares in PSUs, issue shares in state-owned insurance companies and get rid of loss-making 'sick' units.
FM's divestment plan to boost market hopes
What does Jaitley mean by divestment?
Divestment or divestiture, can be described as the opposite of an investment. It involves selling an asset for either financial, social or political goals. Reportedly, the BJP government is looking to leverage on the thriving domestic capital markets to trim its annual deficit.
Details of the divestiture plan
The government plans to receive Rs 46,500 crore from selling of stakes in PSU.
The second plan component involves listing state-owned insurance companies and three railway PSUs (IRCTC, IRCON and IRFC) to fetch Rs 11,000 crore.
The remaining Rs 15,000 crore will be raised by strategic disinvestment of stakes in loss-making units like BALCO, Hindustan Zinc. This move was last used 12 years ago.
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Unsuccessful divestment goals for FY 2016-17
For the current fiscal, the government had hoped to make Rs 56,500 crore in divestment strategies.
However, it managed to raise only Rs 27,434 crore by divesting stakes in fourteen state-managed units and successful Further Fund Offering (FFO) of CPSE ETF worth Rs 6,000 crore.
Market analysts feel that the present divestment target of Rs 72,500 is ambitious but achievable.
What is CPSE ETF?
An ETF (Exchange Traded Fund) is a marketable security that tracks commodity, bonds or basket of assets and operates like a common stock on a stock exchange. The recent offering by government on CPSE (Central Public Sector Enterprises) ETFs was oversubscribed by nearly 2.70 times.
LIC investment in every divestment
Since 2011-12, as much as 37 per cent of government's receipts from sale of stakes in PSUs have come from LIC.
The insurance giant has purchased shares worth at least Rs.36,686 crore in PSU stake sales.
Even though LIC hasn't always earned from these deals, officials claim that these PSUs are blue chip companies and are a good investment on long-term basis.
21 Feb 2017
Three railway PSUs listed for divestment
The government today started listing three of its fully-owned railway PSUs, namely Indian Railway Catering and Tourism Corporation (IRCTC), Indian Railway Finance Corporation and engineering-construction company IRCON limited for divestment.
The finance ministry is considering divesting a portion of their stake through an IPO and looking to appoint merchant bankers to conduct the process by March 16.