Union budget 2025: India’s divestment push slows down
Government forced to adjust strategy amid global uncertainty
Ahead of the Union Budget presentation, it has been reported that the Government of India plans to reduce its divestment target by 40 pc, lowering it to less than INR 300 billion, down from an estimated target of INR 500 billion. This reflects the slowdown in the disinvestment drive undertaken by the government.
On January 27, 2022, the Government of India, after 70 years, completed the strategic disinvestment of the country’s domestic airline, Air India. It was sold to India’s largest conglomerate the Tata Group, which had originally sold its majority stake to the government in 1953.
As part of the deal, the Indian government received a consideration of INR 27 billion from Talace, a wholly owned subsidiary of the Tata Group, whose sole responsibility is to operate and manage Air India under the company.
Later in 2024, union finance minister Nirmala Sitharaman announced that no sector is now exclusive to the government, implying that the private sector will have the opportunity to invest across all public platforms.
However, during the presentation of the Union Budget for 2023-24, despite government proceeds totaling INR 165 billion and asset monetisation fetching around INR 160 billion, effectively combining for a target of INR 300 billion, the Government of India had set a disinvestment target of INR 510 billion, the lowest in seven years.
Amid the government tabling the Economic Survey, newsreports emerged that the government plans to reduce its disinvestment and asset monetisation target by 40 pc, lowering it to less than INR 300 billion from INR 500 billion.
According to experts, several factors contribute to the government‘s delay in divesting its stake in the public sector, including market volatility due to global economic uncertainties, fluctuations in the domestic market affecting investor sentiment, and regulatory and procedural delays.
A key example is IDBI Bank, where the government, holding a 45.48 pc stake, announced plans in 2022 to sell 30.48 pc. However, the process continues to face delays, with due diligence by consulting firm KPMG cited as the reason.
Besides IDBI, the government has also put the disinvestment processes of nine other companies on hold, including Madras Fertilisers, Fertiliser Corporation of India, and NBCC (India). According to news reports, opposition from relevant ministries has played a role in delaying these processes.
Is a Policy Shift the Reason?
However, according to Vipul Kumar, a chartered accountant with 27 years of experience, a policy shift has also played a key role in the government putting its targets on hold or delaying them.
“The government is focussing more on asset creation and increasing the profitability of its central public sector companies. Additionally, with the union government directing its focus on manufacturing, it is discouraging the disinvestment process in the PSUs,” Kumar tells Media India Group.
Meanwhile, the union government is planning to revive one of its state-owned helicopter operators, Pawan Hans, by funding the purchase of new fleets.
According to a Reuters report, despite the successful bid in 2023, the helicopter operator is expected to receive between USD 230 million and USD 350 million to modernise its helicopter fleet.
What Are Government Plans?
However, according to Kumar, the government has taken a recalibrated approach and is being strategic at the moment, rather than pursuing an aggressive sell-off strategy.
“The union government is focussing on strategically reworking public sector enterprises so they can grow and generate dividends for stakeholders,” adds Kumar.
Meanwhile, in 2024, the finance ministry announced it is adopting a ‘calibrated divestment strategy’ by listing central public sector enterprises on the stock market. The Department of Investment and Public Asset Management (DIPAM), which manages the divestment process, recently raised INR 86.25 billion by reducing its stakes in companies like General Insurance Corporation of India, Cochin Shipyard, and Hindustan Zinc.
Earlier, the privatisation of public sector companies was a key part of the government’s strategy to bridge the fiscal gap. But with the fiscal deficit declining to 4.9 pc of GDP in 2024-25, the push for disinvestment has slowed. Currently, the government has completed the sale of only three companies, Air India to the Tata Group, selling indirect holdings in steelmaker Neelachal Ispat Nigam Ltd to Tata Steel, and Ferro Scrap Nigam to Konoike Transport Company.
According to Kumar, the slowdown is largely driven by the government’s focus on strengthening manufacturing within PSUs, influenced by factors such as market conditions and legal disputes initiated by stakeholders, which the government manages. As a result, disinvestment across various sectors is not a primary focus at the moment.
“The slowdown is driven by the government’s focus on strengthening manufacturing within PSUs, influenced by market conditions and legal disputes. Disinvestment is not a primary focus right now as they aim to develop sectors strategically, making them profitable and enhancing overall wealth for better business performance,” emphasises Kumar.