How big is the disinvestment target set in the Union Budget 2021-22 and does it look feasible?

At the outset, it must be remembered that the government has broken up the entire topic into 3 parts in the Union Budget. There will be disinvestment that will be sale of minority stake in PSUs. Then there will be privatization which will entail sale of controlling stake in non-strategic sectors. Finally, there will be asset monetization which will include assets like roads, highways and gas pipelines, where future cash flows will be monetized.

Let us talk of divestment first. The government hopes to earn Rs.175,000 crore through the disinvestment route in fiscal 2021-22. This will include the sale of stake in LIC, which could raise close to Rs.100,000 crore. This is less than the total target of Rs.210,000 crore set last year but there is a lot of distance to make up as 2020-21 will fall way short of target.

Then there will be the all important aspect of privatization where it would be most likely to be a strategic sale with ceding of management control. The budget plans to sell its controlling stake in many companies including BPCL, Air India, Shipping Corporation of India, Bharat Earth Movers etc.

Then there will be the privatization of the financial sector. Apart from the minority stake sale in LIC, the government plans to privatize two PSU banks other than IDBI Bank. It also plans to fully privatize one of the general insurance companies owned by the government although details of the specific candidate are not available.

In addition, there will be monetization. One of the innovative proposals in the budget is sale of surplus land and properties with government ministries and PSUs. This will be used to raise money to fund infrastructure projects. The bad bank concept will also be partially used to boost the divestment process, although details are to be worked out.

Finally, on the monetization front, the government will also look to monetize the government sponsored cash flow generating assets like gas pipelines, roads, highways, toll ways etc. This will be done to securitize future cash flows and help raise capital with a view to making these businesses asset-light and improve the ROE..