This to many seemed like the symptom of an old disease – dragging one’s foot on a decision which affects many, despite the fact that the government needs to shore up revenues to be able to spend more on social welfare and infrastructure projects ahead of parliamentary elections next year.

Though no reasons were ever given out, it’s understood that the absence of a second bidder stalled the process for selecting a valuer. That appears more like an excuse as the valuer would not have sold the bank, but merely placed a value on its shares.

The Government of India and state-run Life Insurance Corporation together hold nearly 95 per cent stake in IDBI Bank. The plan was to bring it down to 34 per cent through strategic sale.

This is not the first time that the government has scrapped disinvestment in a state run enterprise after putting it on sale. What is surprising is that the sale of IDBI Bank, according to the government’s own reckoning, was a priority action in FY 2023-24.

The IDBI Bank episode is a reflection of a larger malaise affecting the disinvestment programme. It no longer seems to be a priority action area for the government, although successive budgets have set ambitious targets only to sharply revise the numbers downwards at the end of every financial year (see chart).

Roller Coaster Ride

When Prime Minister Narendra Modi took power in 2014, it was widely expected that his government would fast track privatisation of public sector enterprises. Not so surprisingly, therefore, presenting the union budget for 2015-16, then finance minister Arun Jaitley declared: “A new policy for management of Government investment in Public Sector Enterprises, including disinvestment and strategic sale, has been approved. We have to leverage the assets of CPSEs for generation of resources for investment in new projects.”

The scope of the disinvestment programme was to be expanded to include monetisation of idle assets, especially those owned by entities such as the Railways, state-run telecom and mining companies.

The Department of Disinvestment was rechristened as Department of Investment and Public Asset Management.

For 2015-16, the government set a disinvestment target of nearly Rs 70,000 crore, 20 per cent higher than the previous year’s target. Actual proceeds, however, fell short of the target by 40 per cent, because of adverse market conditions triggered by demonetisation in November 2016. The following year was no better even though the target was significantly scaled down to Rs 56,500 crore.

It was only in 2017-18 that the government’s push for disinvestment began to bear fruit. A higher target was set, at Rs 72,500 crore. And pleasingly for the government, actual proceeds far exceeded the target, crossing Rs 1 lakh crore for the first time in the history of disinvestment. FY 2018-19 also turned out to be good, with proceeds from disinvestment exceeding the target for a second straight year.

“After we redefined the disinvestment policy it allowed us to work with much more freedom. We exercised all options, outright sale, ETF, IPO including mergers and acquisitions, and the result was there for everyone to see. That strategy is not being followed. We should never expect the market conditions to be ideal, it never happens,’’ said a former secretary in the finance ministry.

The trend reversed, however, as the broader economy began to slow down in 2019 and the country slipped into election. The outbreak of the Covid19 pandemic in March, 2020 made it worse.

The first full-budget in the second term of the Modi government, presented in February 2020, set an ambitious disinvestment target of Rs 2.1 lakh crore, but couldn’t raise even a fifth of it as a pandemic triggered lockdown brought economic activities to a standstill, led to a contraction and roiled markets.

After returning to power for a second term, the Modi government lined up several big ticket sales that included entities such as the Bharat Petroleum Corporation Ltd (BPCL), Shipping Corporation of India (SCI), Container Corporation (Concor) and Bharat Earth Movers Ltd. (BEML). A few banks – the Bank of India, Indian Overseas Bank and the IDBI Bank – and the state-run General Insurance Company were later added to the list.

The pandemic played spoilsport. Not only that most of these big ticket sales had to be shelved or put on hold, there doesn’t seem to have been a serious effort to revive the disinvestment programme even after the pandemic has waned, the economy has recovered and market conditions turned favourable.

More importantly, many PSU shares have lately become a favoured buy for investors. The PSU Index on the National Stock Exchange has risen almost 40 per cent in the past year.

Reasons Galore

From market adversity arising from the pandemic to opposition from political parties, trade unions and, in some cases, state governments, officials in the government are quick to come up with reasons explaining the lacklusture performance of the disinvestment programme.

In reality, however, it’s the lack of willingness and policy inertia that seem to be plaguing the disinvestment programme. Which is why, even in 2022-23, disinvestment proceeds totaled Rs 33,500 crore, just about half of the Rs 65,000-crore target set for the year. In the first eight months of the current fiscal year, the government has raised a meagre Rs 8,800 crore against a full-year target of Rs 51,000 crore.

“We in the government cannot keep blaming the market conditions. I believe that our strategy, vision and intentions are not aligned,’’ said a senior bureaucrat who didn’t want to be named.

Those who are ideologically opposed to PSU share sale are, of course, not so disappointed.

“Our stand is very clear. We fundamentally oppose any sort of selling of PSU shares. What is more worrisome is that there are several companies whose shares are trading at a price lower than its offer price. These are cases of poor valuation in the first place,” said P Santosh Kumar, a Member of Parliament from the Communist Party of India.

Valuation has always been a contentious issue ever since the start of the divestment programme in the early 1990s. Opposition parties have always used it as a handle to target the ruling dispensation for selling public assets at undervalued rates. On the other end of the spectrum, price discovery for PSU shares has always been a challenging exercise for the government, often affecting the divestment programme.

“The government itself had expressed its strong intent to move out of non-strategic sectors and have limited presence in others. However, results have not been very good so far. Expectations are high from the government given the sort of mandate they have. In my view, the need for privatisation is far higher than trying to maximize value’’ said Pranav Haldea, MD, PRIME Database, a leading capital market data repository company.

Another reason for the current government to have gone slow on disinvestment in recent times could be that many PSUs have seen their profitability rise sharply in the post-Covid quarters. This has enabled the government to earn handsome dividends against the shares it holds in these companies, which is why it may not have paid much attention to reviving the disinvestment programme, said Gopal Agarwal, a national spokesperson for BJP

Will Things Change?

Privatisation usually takes a backseat in an election year. Ruling parties tend not to risk controversies that might push trade unions to turn adversaries. It would, therefore, be intuitive to expect any major revival in the disinvestment programme until a new government takes office after 2024 elections.

That said, the current regime has often surprised with unconventional responses to policy challenges. The emphatic victory of the Bharatiya Janata Party in recent elections in the three hindi heartland states – Rajasthan, Madhya Pradesh and Chhattisgarh – could encourage PM Modi to put the disinvestment programme back on track earlier than expected.