Budget 2025: Don’t Squander the Opportunity, Go Big on Disinvestment

The value of the Central government's ownership stake in 58 central public sector enterprises (CPSEs) – NTPC Ltd, Bharat Petroleum Corporation Ltd, among others – and 16 financial sector enterprises, including banks and insurance companies, have declined from Rs 48.14 lakh crore on 18 July 2024 to Rs 40.14 lakh crore on 1 January 2025, according to the Department of Investment and Public Asset Management (DIPAM) data. In effect, in less than six months, the government has lost Rs 8 lakh crore or about 20 percent of the market value.What Middle Class' Tax Burden Tells Us About the State of Indian Taxation SystemIn the last three years, the government has virtually shut down the disinvestment and privatisation programme. It refused to even specify a disinvestment receipts target in Budget 2024-25.In the nine months of 2024-25 so far, the government has carried out only three disinvestment transactions, receiving less than Rs 8,000 crore. Budget 2025-26 is round the corner. A 5 percent disinvestment of Rs 40 lakh crore worth of stake value can yield Rs 2 lakh crore in disinvestment receipts.Why is the government squandering a big opportunity to increase disinvestment receipts? Why has the government shut down the privatisation programme? Should the government not revive disinvestment?As per a Comptroller and Auditor General (CAG) report, the market value of shares held by the government on 31 March 2020 (in 52 listed CPSEs, not including financial enterprises) was Rs 7.87 lakh crore. That, in the immediate aftermath of the COVID-19 breakout, was the lowest value of government stake in many years.Many factors contributed to the big jump in the value of government stake from 2021 onwards. The government undertook a massive capital expenditure programme, giving large orders to PSUs, with high profit margins, in defence, railways, and other sectors. Big boom in stock markets also provided tremendous tailwind support.The value of government stake in CPSEs consequently rose and peaked in July-August 2024. On 18 July 2024, it was Rs 27.89 lakh crore in 58 listed CPSEs. The government stake value had risen to about 350 percent in about four years.Value of government ownership stake in 16 listed financial enterprises – 12 public sector banks (PSBs), IDBI Bank, and three insurance companies – also zoomed. On 18 July 2024, it was Rs 20.25 lakh crore.Together, the government’s value in all PSUs, aggregated Rs 48.14 lakh crore. The government was sitting on nearly Rs 50 lakh crore worth of stake.Total market capitalisation of 63 listed CPSEs (including subsidiaries) on 31 March 2023 was Rs 16.85 lakh crore. The market capitalisation of 66 listed CPSEs increased to Rs 37.23 lakh crore on 31 March 2024.Around July-August 2024, it peaked. On 18 July, it was Rs 45.88 lakh crore for 66 PSEs. Including market capitalisation of 16 financial sector public enterprises at Rs 26.58 lakh crore, the total market capitalisation of all 82 listed PSUs was a humungous Rs 72.46 lakh crore.The stock market and PSUs share price frenzy began to fade away from the second quarter.On 30 September 2024, total market capitalisation came off to Rs 69.49 lakh crore. On 1 January 2025, total market capitalisation, including the newly listed NTPC Green Energy, came down to Rs 63.53 lakh crore. In a space of six months, CPSEs market capitalisation eroded by about Rs 9 lakh crore.Falling market capitalisation hurt the value of government stake as well.The government stake value declined from Rs 27.89 lakh crore on 18 July 2024 to Rs 23.02 lakh crore on 1 January 2025 – a fall of more than 21 percent of stake value. The government stake value in financial PSEs also came off – from Rs 20.25 lakh crore on 18 July 2024 to Rs 17.12 lakh crore on 1 January – a decline of Rs 3.14 lakh crore or about 18 percent of its value on 1 January 2025.Decline of about Rs 8 lakh crore in a little more than five months should worry the government.The government spokespersons sometimes make a big deal of increasing dividend receipts.Dividend receipts have indeed gone up in the last three years. The government received Rs 39,558 crore in dividend receipts in 2020-21 from all PSUs. In 2021-22, the dividend receipts jumped to Rs 59,293 crore.Dividend receipts stabilised thereafter. In 2022-23, dividend receipts were Rs 59,532 crore, almost at 2021-22 level. In 2023-24, dividend receipts increased by about 7 percent to 63,749 crore.In 2024-25, as per the DIPAM website, the government has received Rs 48,376 crore as dividend until December, which is about 75 percent of dividend receipts of 2023-24. Dividend receipts in 2024-25 are likely to be close to what the government received in 2023-24.Comparing dividend receipts of Rs 63,749 crore in 2023-24 to Rs 39,558 crore in 2020-21 is, however, misleading. To make a good comparison, we need to take into account dividend receipts in pre-COVID and pre-banking-crisis period.The government had received Rs 57,425 crore dividend in 2013-14 and Rs 50,701 crore in 2017-18. Compared to 2013-14 dividend receipts of Rs 57,425 crore in 2013-14, the dividend receipts of Rs 63,749 crore in 2023-24, after 10 years at a CAGR of only about 1 percent per annum, is not at all a great achievement.The Narendra Modi government ran quite a successful disinvestment programme in 2017-18 and 2018-19 raising receipts of Rs 1,00,057 crore against the budget target of Rs 72,500 crore in 2017-18 and Rs 84,972 crore against budget target of Rs 80,000 crore in 2018-19.The Modi government was very keen to scale up disinvestment programme in its second term. It fixed budget targets of Rs 1.05 lakh crore in 2019-20, Rs 2.10 lakh crore in 2020-21, and Rs 1.75 lakh crore in 2021-22. In 2021-22 budget, it announced an ambitious privatisation policy as well, promising to sell-off or close all non-strategic PSUs and limit PSUs in strategic sectors to a maximum of four.In 2019-20 and 2020-21, the disinvestment programme suffered primarily from the crash in market valuations post COVID-19. The government could still raise Rs 50,300 crore and Rs 32,885 crore as disinvestment receipts in these years.The disinvestment programme collapsed from 2021-22 squarely on account of the Modi government developing cold feet towards privatisation and even shying away from minority disinvestment.This complete about-turn from 2021-22 is quite baffling. The government kept sitting idle even as markets kept rising from 2021 onwards. No rationale has been offered for this massive about-turn in policy.The government should not continue to lose the opportunity to divest equity out of the Rs 40 lakh crore of value chest it holds in listed PSUs.There is enormous disinvestment opportunity in:Power – IREDA, NHPC, NLC, and SJVNRailway – IRCTC, IRFC, IRCON, Rail Vikas, and RailTel Defence – Bharat Dynamics, Cochin Shipyard, Garden Reach, Hindustan Aeronautics, and Mazagaon DockyardsSteel and metals – Mishra Dhatu, MSTC, and NMDCOthers – BHEL, Hindustan Copper, NBCC, and HUDCOThere is significant disinvestment opportunity in PSBs and insurance companies as well. The government’s stake in these companies is very high, in some cases exceeding 90 percent. For example, LIC, Indian Overseas Bank, and Punjab and Sind Bank.The government can easily sale minority shareholding of 5-25 percent equity stake in these CPSEs, PSBs, and LIC to raise over Rs 5 lakh crore.The government must also get its act together and carry out a few privatisation transactions. By privatising Container Corporation, BPCL, Shipping Corporation, BEML, IDBI Bank and 1-2 PSBs, a few other PSUs, one general insurance company etc, the government can easily raise another Rs 5 lakh crore.Make 2025-26 budget a disinvestment and privatisation budget. The government tax revenues are coming under pressure with the corporation taxes recording negative growth and GST receipts growing in single digit only.A well-crafted disinvestment and privatisation programme provides a great opportunity to not only raise fiscal resources but also bring about massive productivity improvement in operation of public sector enterprises, as is evident from the CPSEs privatised earlier by the Atal Bihari Vajpayee government.Make disinvestment and privatisation its flagship policy pivot in Budget 2025-26. Set ambitious disinvestment receipt targets. Specifically mention CPSEs, banks, and insurance companies to be privatised in the budget. Thereafter, go a whole hog to translate the same into action.That will serve India well.(Subhash Chandra Garg is the Chief Policy Advisor, SUBHANJALI, and Former Finance and Economic Affairs Secretary, Government of India. He's the author of many books, including The $10 Trillion Dream Dented, We Also Make Policy, and Explanation and Commentary on Budget 2024-25. This is an opinion piece, and the views expressed above are the author’s own. The Quint neither endorses nor is responsible for the same.)

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Budget 2025: Don’t Squander the Opportunity, Go Big on Disinvestment

In the last three years, the government has virtually shut down the disinvestment and privatisation programme.

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Topics: Narendra Modi disinvestment PSU banks