The sowing eyed an impressive harvest, but as the scythes were being sharpened, the Grim Reaper’s deadly emissary devised a counter stroke. On February 1, 2020, Union Finance Minister Nirmala Sitharaman announced a grand plan to raise Rs 2,10,000 crore from disinvestment. Little did she expect COVID 19, which had begun to spread its deadly tentacles, to tarnish those dreams. Concomitant to that disappointment is the bloodbath in Indian and global markets and a dissolving appetite for public issues and IPOs.
Although disinvestment exercises are on, it will be difficult for the government now to go ahead with strategic sales in the state-owned Air India and BPCL, as well a sale of minority stake in LIC. According to former finance secretary Subhash Chandra Garg, it will be almost impossible to reach anywhere near the ambitious Budget revenue estimates.
“Market conditions are not favourable for the sale of minority stakes in PSUs, and there may be little interest in strategic sales,” he says. He adds that the idea to put smaller PSUs on the block “does not make sense as their market values have slumped”. Moreover, such PSUs can help to raise only a miniscule portion of the budgeted amount.
Explains CARE Ratings chief economist Madan Sabnavis: “The stock market will never reach the 40,000 level this year, which means that valuations will remain affected. Secondly, there will be deep-rooted problems in the oil and aviation sectors that will impact BPCL and Air India. LIC is just too big, and needs a lot of work before a minority stake can be sold.”
Senior officials agree that they will adopt a wait-and-watch attitude until December 2020. They contend that due to extreme changes in market dynamics, rules may need to be rewritten. A finance ministry official says, “The expenses due to the pandemic will increase, and have not been accounted for in the Budget. Hence, the government will look at various options to raise money, including sale of stakes in smaller PSUs.”
To add to the crisis, US-based Franklin Templeton Mutual Fund recently decided to close six of its Indian debt funds, creating a ripple of insecurity amongst investors. This will further impact the Indian market, despite the RBI’s prompt move to shore up the other ailing mutual funds. Disinvestment has to return on track, but one doesn’t know when. In these uncertain times, timetables are among the first casualties.
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