An overview of the divestments process

 

The Narrative:

The government said last week that it planned to sell 5% of its stock in IRCTC (Indian Railway Catering and Tourism Corporation) in order to earn Rs. 2,700. They hoped to move a little bit closer to the Rs. 65,000 crore divestiture objective for FY23. Since the government has already raised 95% of its goal — Rs. 28,000 crores from the sale of shares in PSEs and Rs. 34,000 crores from dividends — they will probably do it sooner rather than later.

Governments haven't always been very successful with disinvestments, so we thought we'd give you a quick history of the issue and examine our progress so far.

1991 saw a severe financial crisis in India. Our resources were completely exhausted as a result of the 1990 Gulf War and the ensuing oil shock. We hardly had enough money to cover our imports. And it was at this point that the government began to think about selling off individual components of public companies in order to strengthen the state's financial position.

We had two goals in mind. One, to encourage tight coordination with businesses in the private sector. Raising money is step two.

Regardless, in 1991 the government started forming committees to assist address the numerous problems connected to disinvestments. difficulties with valuation, labour, locating purchasers, etc. This initiative, however, was plagued with problems and conflicts since it was so recent. Allegations surfaced that the shares were improperly distributed, which resulted in significant financial loss for the state. And once again, the administration had to start from nothing. Between 1992 and 1993, they gradually improved their procedures, but after that the market circumstances had a negative impact on the procedure because the majority of purchasers were unwilling to even place a bid.

The situation didn't significantly improve after that, and it wasn't until the turn of the century that disinvestment truly began to increase. As an illustration, the government made attempts to raise Rs. 54,000 crores between 1991 and 2000, but only partially succeeded. But after the year 2000, things started to shift quite quickly. The Vajpayee administration started privatizing whole enterprises against strong resistance.

the current problem Disinvestments are quite different from one another. Minorities do engage in disinvestment. In this case, the government sells a small piece of the venture to outside investors while maintaining a big ownership interest (often greater than 51%). These activities typically pose minimal risk. The government may keep a little portion of the money without drawing too much criticism since it still has management authority. Disinvestments frequently happen in this way. Because it didn't want to alarm people, the government clung to this idea for a very long period.

However, there are additional classifications of disinvestments, such as majority disinvestment. This occurs when the government cedes managerial authority to investors while selling a controlling interest. The Vajpayee administration originally sold 74% of Modern Foods to a private business before selling the remainder to HUL. That represents a substantial disinvestment. The most severe form of privatization is total privatization, in which the government sells the whole business to a private buyer.

This is strange. highly unusual One such instance is the selling of Air India to Tata. In any case, the government raised Rs. 24,260 crores by selling off a number of state-owned companies between 1999 and 2004. The pace slowed down once again between 2004 and 2009, and the government was only able to raise a pathetic Rs. 8000 crores or so. However, over the course of the subsequent several years, when shares worth more than 1 lakh crores were sold, the Indian government's position on disinvestment would become firmly established. Over the course of the next five years, the BJP government excelled and raised over 2.8 lakh crores.

Do keep in mind, however, that the government didn't always sell shares to private investors. Occasionally, they might just sell their stock to another PSU. Take the selling of HPCL to ONGC as an illustration. The government has no business to do business, as Prime Minister Narendra Modi stated in 2014. However, not all disinvestments are equal and this proves that once more.

But the fact that succeeding administrations have continued to expand on the concept of selling off the government's investment in several companies indicates that India is moving in one direction or another toward privatization.