Tuesday, March 21, 2023

The Treasury Department is committed to privatizing already announced CPSEs next fiscal year

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The Ministry of Finance will proceed with the already announced and planned privatization of state-owned enterprises in the next financial year, and the chances of the new addition to that list of CPSEs in the Budget for 2023-24 is unlikely, sources said. The divestment target outlined in the budget for the next fiscal year is likely a scaled down and realistic target as the budgeted PSU sell-off target for the fourth year in a row will not be met this fiscal year.

In the current fiscal year, the government had budgeted to collect Rs 65,000 crore for divestments. However, so far it has only realized Rs 31,106 crore by selling minority stakes in public sector companies.

Having tasted success in privatizing loss-making Air India in 2021, PSU sell-off progress over the past year hasn’t been very impressive, and experts say with the general election looming in 2024, no major divestment announcement will be made. also do not expect in this budget.

“The plan is to proceed with the strategic sale of the companies for which the approval of the cabinet has already been obtained,” an official told PTI.

This means that the government will continue to privatize companies like Shipping Corporation of India, NMDC Steel Ltd, BEML, HLL Lifecare, Container Corporation of India and RINL or Vizag steelas well as the big ticket IDBI Bank.

Since strategic sale or privatization takes at least a year, and in some cases even longer, a highly budgeted divestment target may not be achievable.

Nangia Andersen LLP, Partner-Government and Public Sector Advisory, Suraj Nangia said: “The privatization process often takes time, depending on the type of privatization and the economic, social and political context, highlighting the importance of a mid-term plan. solid regulatory framework and competitive markets”.

“A multi-year strategic plan for privatization can be established to ensure a concrete timeline and a well-designed sequence and strategy for privatization,” said Nangia.

EY India, Associate PartnerFiscal and Economic Policy Group, Rajnish Gupta said the privatization program could see a revival after the 2024 general election.

“Maybe this year’s budget will be a little muted and we might see announcements about divestment and sale of minority interests. After 2024, we might see another acceleration in the privatization program,” Gupta said.

Over the past year, the government had called off a number of strategic sales, including BPCL, due to a lack of investor interest. Experts believe that the private sector will be more inclined to buy state-owned companies if their deal is softened with tax incentives and regulatory exemptions.

Nangia said private sector participation is more likely to succeed if the required information is accurate, such as that of operational performance, state of assets, etc.

“An important factor that investors consider when deciding whether to bid in the privatization program is a ‘predictable regulatory environment and the absence of unnecessary administrative barriers to business in general’. Other relevant factors include sufficient and accessible resources, including the presence of relevant infrastructure and human capital, tax incentives, financial subsidies and regulatory exemptions,” Nangia added.


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