Will Govt Meet its Disinvestment Target?

Wed, 27 Jul Pre-Open

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After failing to meet its disinvestment target in financial year 2014-15, the government is taking appropriate measures to not repeat this again. Recently, the government has expressed its desire to sell minority stake in companies such as ITC, Axis Bank, Larsen and Toubro and many others.

In this year's budget, the government has yet again set an ambitious divestment target of Rs 565 billion. The government plans to achieve a part of this by selling minority stakes in 51 listed and unlisted companies.

Government has stakes in these companies through The Specified Undertaking of the Unit Trust of India (SUUTI). Further, the government aims to sell this stake in a period of three years. For this, the government has split the disinvestment programme into three parts.

Group A, which includes its holding in ITC, L&T and Axis Bank, will be up for divestment first. Group B will include the eight unlisted firms in which SUUTI owns shares. Group C will hold the remaining 40 listed firms held by SUUTI.

The stake sale of their entire holdings in ITC, L&T and Axis Bank will fetch the government somewhere around Rs 607.8 billion at Monday's closing prices. It holds an 11.17% stake in ITC, 8.16% in L&T and 11.53% in Axis Bank.

Further, the divestment will help the government to meet its fiscal deficit target. The government aims to maintain the fiscal deficit at levels of 3.5% of the gross domestic product for 2016-17.

Having said that, the interesting fact is that the government has asked Life Insurance Corporation to buy securities worth Rs 300 billion from SUUTIs holdings. That is almost half of the SUUTIs holding.

Once again, the government has asked LIC to rescue it to meet its ambitious divestment target. Here is Vivek Kaul's take on LIC coming to the rescue of the government:

The government treats LIC as a sovereign wealth fund, which keeps coming to its rescue whenever required. But the money LIC has and manages is not the government's money. The LIC manages the hard earned savings of the people of India and given that these savings need to be treated with a little more respect.

It's time the government stops knocking LIC's doors everytime it wants to meet its disinvestment target. Though there is a good probability that the government meets its disinvestment target, the quality or the manner of divestment is something to worry about.

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