Union Budget 2023: Government May Take Conservative Path To Divestments

Nirmala Sitharaman will present the Budget on February 1
Nirmala Sitharaman will present the Budget on February 1

The government had set a divestment target of Rs 65,000 crore for the fiscal year 2022-23. However, it failed to meet the target and could raise only Rs 31,106.4 crore. All eyes are now on the Union Budget 2023 to know the government's divestment plans for the next fiscal and how it will utilise its stakes in public sector undertakings.

According to the Department of Investment and Public Asset Management (DIPAM), the government sold 3.5% of its stake in Life Insurance Corporation (LIC) through an initial public offering (IPO) and raised Rs 20,516.12 crore. This formed a major part of the total amount received from divestment by the government in FY23.

Rs 3,026.23 crore was raised through an offer-for-sale in Oil and Natural Gas Corporation (ONGC) while the government offloaded its 19.55% shares in Paradeep Phosphates Ltd (PPL) to get Rs 471.5 crore. In addition, a sale of Axis Banks shares held by the specified undertaking of the Unit Trust of India (SUUTI) helped the government to raise Rs 3,839 crore.

However, despite some major divestments, especially the country's largest IPO of LIC, the divestment target could not be met. Due to this, experts are of the opinion that the government might set a more realistic target for the next fiscal year in the upcoming budget. 

According to Garima Kapoor, economist-institutional equities, Elara Capital, the divestment target is likely to be between Rs 40,000 and Rs 50,000 crore. “Due to market conditions, the proposed sale of Bharat Petroleum Corporation (BPCL) couldn't go through, but realisation from the LIC divestment was lower than expected and proceeds of the IDBI Bank sale are unlikely to materialise in FY23,” she was quoted as saying by Forbes India.

According to global brokerage and financial services firm Nomura, the target is expected to be more conservative at Rs 500 billion. Kotak Institutional Equities, also said in a recent note that divestments for FY 2023-24 to remain at around Rs 500 billion.