Covid-19 impact: Missing disinvestment targets will have consequences

Any slippage in disinvestment numbers combined with other revenue shortfall would mean the govt would have to borrow more in the market.

The economic travails this year will be challenging, and from the economist’s perspective, economic growth and fiscal deficit are the two main challenges. The government had embarked on a very ambitious disinvestment programme for the year of Rs 2.1 trillion. It sounded optimistic as we have never delivered such an amount before. The highest was Rs 1 trillion in FY18. The present programme includes the sale of Air India, Life Insurance Corporation of India (LIC) and Bharat Petroleum Corporation Limited (BPCL), which made this very aggressive target look possible.

For disinvestment to take place, there need to be a good number of buyers as well as valuation. Else, like in the past, divestment becomes an exercise of one public sector undertaking (PSU) buying into another. The challenge today is that the conditions do not look congenial and the market is just too volatile. The stock market has touched a new low post the announcement of a shutdown. There seems to be no sign of the shutdown ending or even a plan as to what should be done once this ends. Realistically speaking, FY21 will be a washout. The market is unlikely to reach the January levels anytime soon and unless it is moving in the upward direction continuously for three months, can one be assured that the valuation will be fair?

The other factor is the kind of disinvestment we are looking at. BPCL no longer looks as attractive with the price of oil below $30/barrel and the future of the sector being uncertain. A global recession is for sure, which means that oil prices will be depressed and the sale of such an enterprise will remain unattractive. Next, Air India has been on the block for some time now, and there is no clear plan about how to go about it given the overhang of debt which is around Rs 60,000 crore. To top it all, the future of the aviation industry is in jeopardy following the breakout of the pandemic as movement across countries will remain barred for at least six months after normalcy returns.