Finance Minister Nirmala Sitharaman has announced in the budget presented for the financial year 2021-22 that the government will raise Rs 1.75 lakh crore by selling to some government companies in the next financial year. Some of the companies to which the government will sell will be sold completely, while some companies will be partially sold. At the same time, the money will be raised through IPOs of some government companies. In last year’s budget speech, Nirmala Sitharaman had set a target of raising 2.1 lakh crore rupees from similar disinvestment. Of this, Rs 1.2 lakh crore was to be raised through disinvestment of public sector companies, while Rs 90 thousand crores were to be raised by selling their stake in financial institutions.
But due to the Covid-19 pandemic and the lockdown that caused it, the functioning almost came to a standstill and this exercise stopped. Along with this, the business of companies sold, and their economic condition also declined. Therefore, the government has now decided to raise Rs. 1.75 lakh crore instead of Rs. 2.1 lakh crore by revising its target.
The government has also created a department under the Ministry of Finance to make the disinvestment process easier. The name is Department of Investment and Public Asset Management or DIPAM. Here two methods of selling a stake in companies are adopted.
First: Disinvestment means the government selling a stake in its companies. Generally, private sector companies buy this stake of the government.
Second: Withdrawing IPO. Under this, the government removes some shares of its companies in the stock market for the common people. For example, let us assume that 10 percent IPO (Initial Public Offer) of Life Insurance Corporation of India (LIC) was withdrawn. That is, the government sold 10 percent of its total stake in LIC to the common people through the stock market and earned money.
The money raised from disinvestment comes in the capital side of the budget (the capital account). The government spends this money on the infrastructure development of the country, railways, highways, schools, hospitals, ports, etc.
Now, let’s talk about the companies that the government is going to sell in whole or in part. The largest government company among these is Bharat Petroleum Corporation Limited (BPCL). This company has the status of ‘Maharatna’ company. Now you will ask what is a Maharatna company?
Actually there are 3 categories of government companies in the country: Maharatna, Navratna and Miniratna.
Maharatna category includes the largest public sector companies, such as Indian Oil, ONGC, BPCL etc.
Mid-sized government companies have been kept in Navratna category.
At the same time, small government companies fall in Miniratna category.
Maharatna status is given only to companies which fulfill the following conditions:
- The company should already have the status of Navratna company.
- Listed on the Indian stock market with the minimum prescribed public shareholding under the Securities and Exchange Board of India (SEBI) regulators.
- The average annual turnover of the company for the last 3 years should be more than Rs 25,000 crore.
- The average net worth of the company should be more than Rs 15,000 crore in the last 3 years.
- The average annual net profit of the company in the last 3 years should be more than Rs 5,000 crore.
- The company should perform well in the international market.
On all these terms, 10 public sector companies are able to meet the requirements. BPCL is one of them, whose disinvestment process is said to be completed by next year. The government’s stake in the company is around 53 percent. In 2019, the government had decided that it would sell its stake in this company. Disinvestment of BPCL is the most discussed among the common people and opposition parties. However the remaining companies to be disinvested include Shipping Corporation of India, Container Corporation of India, Nilanchal Ispat Nigam Limited etc. But people do not know much about them. One reason for this is that they are all medium and small sized companies. That is, Navratna and Miniratna fall into the category.
Now let’s talk about the financial institutions which come under the ambit of disinvestment and IPO.
In this, the name of LIC is the first and the name of everyone. The Finance Minister has announced in his budget speech that the government will sell ‘some shares’ of LIC in the market. But for this, the government will not adopt the method of disinvestment, that is, direct shares will not be sold to any other company. Instead, the IPO of LIC will be taken out and it will be available to the common people like the rest of the stock market. The Finance Minister had also announced this in his last year’s budget speech. But nothing could happen due to Corona. Now the Finance Minister has repeated his same announcement again.
Along with LIC, the government has also announced to sell its stake in IDBI Bank. The government currently holds more than 46 percent stake in IDBI Bank. The government has also said that 2 public sector banks will be privatized. However, the finance minister has not mentioned the names of these two banks in the speech. Perhaps this was done in view of the possibility of uproar by the employees of these banks.