State of Non-Tax Receipts, including Disinvestment, 2019-20

State of Non-Tax Receipts of Government of India

(including Disinvestment Proceeds)

NON-TAX RECEIPTS AND INVESTMENT EXPENDITURE

The Government of India accounts records all revenues of non-tax nature- divided into revenue receipts and capital receipts. Dividends from public sector entities is illustrative of non-tax revenue receipts and proceeds of sale of shares in the public sector entities are non-tax capital receipts. The Budget groups all non-tax revenues, excluding capital receipts, as Non-Tax Revenues and the non-debt creating capital receipts, basically receipts from disinvestments and repayments receipts of loans like housing loans advanced to employees, as Non-Debt Receipts.

Total non-tax receipts are Rs. 4.33 lakh crore in budget 2019-20

The Union Government 2019-20 has budgeted Rs. 3.13 lakh crore as Non-Tax Revenues. Further, an amount of Rs. 1.05 lakh crore has been budgeted as Disinvestment Receipts under Non-Debt Receipts. Along with Recoveries of Loans and Advances budgeted receipts of Rs. 14,828 crore, total Capital Receipts budgeted under the category Non-Debt Receipts are Rs. 1,19,828 crore. The universe of Non-Tax Receipts of the Central Government, as per budget 2019-20 is Rs. 4.33 lakh crore. This makes up 2.05% of the projected GDP of 2019-20. For comparison, total Tax Receipts budgeted for 2019-20 are Rs. 16,49,584 crore or 7.82% of the projected GDP of 2019-20. The GDP for FY 2019-20 has been revised down from Rs. 211 lakh crore, as in the budget, to Rs. 204 lakh crore in the advanced estimates released on 7^th January 2020.

Non-tax revenues constitute bulk of the Non-tax Receipts

The Budget Estimates of 2019-20 provide for estimated receipts of Rs. 1.63 lakh crore, almost 50% of Non-Tax Receipts of Rs. 3.13 lakh crore from Dividends and Profits. There are two broad groups of entities from which dividends and share in profits flow to the Government- a. financial companies and entities and b. non-financial companies and entities. Budgeted receipt for 2019-20 from the financial entities group-“Dividend/Surplus of Reserve Bank of India, Nationalised Banks and Financial Institutions” are Rs. 1,06,042 crore and from non-financial group- “Dividend from Public Sector Enterprises and other investments” was budgeted at Rs. 57487 crore.

Government’s non-tax receipts from dividends and surpluses (inclusive from the RBI) has been going up, quite steadily until 2016-17. From Rs. 53762 crore in 2012-13 to Rs. 90442 crore in 2013-14 was quite a decent jump. In 2014-15 it stayed at almost same level with the Government receiving Rs. 89861 crore. It resumed its onward march from the year 2015-16 when it was Rs. 112136 crore. 2016-17 saw the Government receiving Rs. 123021 crore as non-tax revenues. While RBI contributed handsome share of surplus transfer during 2014-2017, dividends from other Government of India invested entities also rose appreciably from Rs. 37182 in 2014-15 to Rs. 46240 crore in 2015-16 and to Rs. 57145 in 2016-17.

The Non-Tax Receipts (dividend and surplus) of the Central Government are received from statutory authorities like the Reserve Bank of India and Airport Authority of India and Central Public Sector Undertakings (CPSUs), both natural resources owning CPSUs like Coal India and NMDC and commercial enterprises like Indian Oil and NTPC.  

The second big bunch of non-tax revenues come from Economic Services provided by the Government. Under this category, a total of Rs. 1.05 lakh crore has been budgeted for 2019-20. This includes share in profit petroleum and other receipts of Petroleum Ministry (Rs. 16.93 thousand crore), toll and other revenues, including TOT receipts, from Ministry of Roads Transport (Rs. 20.34 thousand crore), and spectrum auction, licence fee and spectrum fees from Adjusted Gross Revenues under the Ministry of Telecom (Rs. 50.52 thousand crore).

The rest of budged non-tax receipts (Rs. 45000 crore) includes all other miscellaneous receipts from interest and from fiscal, social and general services. Interest receipts from States and other entities to which the Central Government had lent debt in the past were budgeted to contribute Rs. 13711 thousand crore. An amount of Rs. 10370 crore was budgeted as receipt from fines and penalties recovered by the Police.

Equity investment expenditure exceeds equity disinvestment receipts

The Government had successfully achieved the projected targets of disinvestment receipts in FY 2017-18 and FY 2018-19. Rs. 1,00,045 crore were received in 2017-18 and Rs. 85045 crore in 2018-19 against target of Rs. 1 lakh crore and Rs. 80,000 crore. The Government has projected an all-time high disinvestment receipt target of Rs. 1.05 lakh crore for FY 2019-20.

A lot of people view the disinvestment receipts as efforts to fill up the fiscal deficit. Focus is on the disinvestment receipts. However, the Government has made and is still making a lot of investments. Government’s investment in non-financial and financial companies, as per the Finance & Accounts of the Government of India, at historical values, was Rs. 7.96 lakh crore as on 31^st March, 2018.

On net basis, there is larger investment expenditure than disinvestment receipts in last two years. In the year 2017-18, Rs. 90000 crore was invested in the equity of public sector banks. Other equity investments made included Rs. 685 crore in Nuclear Corporation, Rs. 1800 crore in Air India, Rs. 125 crore in India Post Bank, Rs. 337 crore in Indian Telephone Industries, Rs. 500 crore in EXIM Bank, Rs. 100 crore each in India Infrastructure Finance Company Ltd and Industrial Finance Corporation of India, Rs. 3880 crore in NABARD, Rs. 3249 crore in Metro Rail projects, 170 crore in Minorities Development Corporation, 43,418 crore in Railways, Rs.23892 crore in National Highways Authority, Rs. 125 crore in Sagarmala Company and Rs. 128 crore in Scheduled Caste Development Corporation. In all, as per the Statement on ‘Investment in Public Enterprises (Statement 26)’ in the Expenditure Profile document of the budget papers, a total of Rs. 1,69,290 crore of equity investment was made by the Government of India. The revised estimates for 2018-19 estimated that equity infusion in public enterprises in 2018-19 was Rs. 2,13, 530 crore.

The investment expenditure on equity infusion at Rs. 1,69,290 crore in public sector enterprises was 169.21% of the receipts from disinvestment at Rs. 1,00,045 crore. In 2018-19, equity infusion at Rs. 213530 crore (RE) was 251.08% of disinvestment receipts of Rs. 85,045 crore. Public sector is still expanding at a good speed, not retreating. If one were to look at the prospects of returns on equity in the kind of projects and enterprises where it is being made now, there is very little likelihood that there would be any positive return on these investments.

Same story is continuing in 2019-20.

The Government has budgeted equity investment, in all, of Rs. 1,86,125 crore for the year 2019-20 (same statement referred above). In includes Rs. 70000 crore to be invested in the equity of the Public Sector Banks, Rs. 65837 crore in the equity of Railways, Rs. 36,691 crore in the equity of NHAI, Rs. 3815 crore in equity of Metro projects, Rs. 1500 crore in equity of NABARD, Rs. 950 crore in the equity of EXIM Bank, Rs. 997 crore in the equity of NIIFRs. 1049 crore in the equity of Food Corporation of India and Rs. 335 crore to provide equity support to India Postal Payments Bank.

It is quite necessary to pay attention to the equity investment proposals in the budget in addition to the disinvestment targets, as large sums of tax payers money are spent on these investments.

PERFORMANCE OF NON-TAX REVENUES

Large RBI Surplus in 2019-20 unlikely to be repeated in 2020-21

Dividend, surplus and profits transfer from non-financial enterprises and financial enterprises/institutions of Government of India make up a large chunk of the non-tax revenues of the Government. In 2017-18, it made up of 47.4%, in 2018-19 (provisional) it was 46.06% and in 2019-20 (BE), it was budgeted at 52.22% of total non-tax revenue of Rs. 3.13 lakh crore.

Of the non-tax revenues coming from dividend, surplus and share of profits, dividend/ surplus transfer from the Reserve Bank of India makes up the largest share.

In 2017-18, transfers from RBI (Rs. 40659 crore, inclusive of Rs. 10000 crore interim dividend) made up 42% of the total non-tax revenues of 91360 crore of dividend, surplus and transfer of profits. This was the year when the RBI retained a part of the surplus (around Rs. 13000 crore) out of 2016-17 profits. The profits were also much lower than other normal years on account of expenditure on demonetization and increase in foreign currency assets. Next year (2018-19), when the surplus rose, transfer from RBI (Rs. 68000 crore, inclusive of Rs. 28000 crore interim dividend) made up 60% of total dividend, surplus and profits transfer income of Rs. 113423 crore (provisional).

RBI had transferred Rs. 52679 crore, Rs. 65896 crore and Rs. 65876 crore in previous three years.

For the year, 2019-20, RBI has already transferred a sum of Rs. 1,47,987 crore (excluding interim surplus amount of Rs. 28000 crore) out of the surpluses of 2018-19. The Government had raised estimated receipts in the BE 2019-20 (main budget presented on July 5^th) under this head to Rs. 106042 crore from Rs. 82912 crore (BE 2019 Interim). Assuming the Government would have expected from Banks and other Financial Institutions to contribute Rs. 10000 crore, it is estimated that the Government had provided for Rs. 96000 crore to come from RBI. Therefore, the Government is getting approximately Rs. 52000 crore in addition to what was budgeted in the BE. RBI is unlikely to provide any interim dividend this year.

RBI earned income of Rs. 1,93,000 crore in 2018-19 as against income of Rs. 78,000 crore in 2017-18, an increase of Rs. 1,15,000 crore!. This was largely on account of massive movement in four heads of income, as stated in the Annual Accounts of the RBI published as part of its Annual Report.

First, RBI books profits when it sales foreign exchange securities. This happens in the year when there is pressure on rupee and supply of dollars in the domestic market is insufficient compared to demand. This is met by RBI selling dollars out of reserves. 2018-19 was the year when net foreign exchange reserves of over $25 billion were sold. As these securities are valued at average cost of acquisition, the RBI booked gain of Rs. 28998 crore under head “Exchange gain/loss from Foreign Exchange transactions”. There was a loss of Rs. 4067 crore under this head in 2017-18.

Second, RBI undertook a one-time revaluation of its foreign exchange assets and took Rs. 52618 crore to its income statement under the head “Provision no longer required and Miscellaneous Income”. Income booked under this head in the year 2017-18 was a meagre Rs. 367 crore.

Third, RBI expanded its rupee securities portfolio during the year 2018-19, having undertaken several open market operations (in excess of Rs. 320000 crore between July 2018 to June 2019). This led to an increase in the interest income from “Interest on holding of Rupee Securities” from Rs. 47968 crore in 2017-18 to Rs. 58343 crore in 2018-19, an increase of about 11000 crore rupees.

Lastly, as RBI, for some reasons, continued to keep liquidity tight for several months (until at least January 2019), RBI earned Rs. 1046 crore on its repo operations as against paying Rs. 9541 crore on the reverse repos  in 2017-18, which is booked under the head “Net Interest on LAF Operations”.

The differential performance in these four heads amounted to generating additional income of a little over Rs. 1,03,000 crore, which explains bulk of the difference in the available income of these two years (Rs. 64200 crore in 2017-18 and Rs. 175991 crore in 2018-19).

The RBI bonanza is unlikely to be available in 2020-21.

One-time revaluation was most likely an one-off event. This was possible intended to generate income to be transferred against previous years realized surpluses as recommended by the Jalan Committee.

RBI has been buying foreign securities this year. Net purchases amount to over $30 billion dollars already by December 2019. Therefore, there is unlikely to be any gains from foreign exchange transactions this year.

RBI has been maintaining surplus liquidity this year and therefore there would be interest payment under LAF rather than any receipt.

OMO operations are also quite subdued this year.

In view of these trends, it is more likely that RBI will earn normal interest income of about 7% on its domestic investment portfolio and 1.25% on foreign currency assets. RBI has rupee assets of Rs. 10.04 lakh crore and foreign currency assets of Rs. 30.56 lakh crore at end November 2019. RBI’s rupee securities were of Rs. 8.04 lakh crore and foreign currency assets of Rs. 26.01 lakh crore at end December 2018. These assets have grown by about Rs. 6.5 lakh crore in a year. Considering the trend of OMOs in domestic rupee securities and buying of foreign currency assets, if one assumes the RBI rupee securities to be at Rs. 11 lakh crore and foreign currency assets Rs. 34 lakh crore and further assumes that RBI will earn 7% on domestic securities and 1.25% on foreign currency assets, the gross income of RBI is likely to be Rs. 77000 from domestic securities and Rs.42500-43000 crore from foreign currency. Total income would total, in all, about Rs. 110000 crore. Assuming RBI’s annual expenditure of Rs. 20000 crore and some retention of surplus consequent to implementation of the recommendations of Jalan Committee, it would be fair to expect, available surplus of Rs. 80000 crore in 2020-21 for distribution to the Government of India. This will impart a substantial downward bias to the non-tax revenues for the year 2020-21.

Dividend income from financial CPSUs likely to improve in 2019-20

Dividend income from PSBs, LIC and other financial enterprises of the Government yielded only Rs. 4203 crore of income (LIC Rs. 2376 crore, all Public Sector Banks put together Rs. 1826 crore) to GOI in 2017-18.

Dividends from PSBs have been coming down sharply over last few years as there has been built up of non-performing loans in the PSBs, leading to PSBs accumulating losses in some years and using almost entire operating profits to make provisions. 2013-14 was the year when dividends from PSBs were as high as Rs. 8184 crore. Thereafter, profitability started declining in the PSBs resulting in dividends from PSBs going down to Rs. 2456 crore in 2014-15, recovering partly to Rs. 4214 in 2015-16, but again plummeting to only Rs. 1445 crore in 2016-17.

Similar loss of profitability appears to have set in in case of public sector insurance companies as well. Three insurance companies, other than New India Insurance, i.e. Oriental, United and National, together paid Rs. 232 crore to the Government as dividend in the year 2016-17. These three companies were practically in losses in 2017-18.

In 2018-19, the income from financial enterprises of the Government of India improved to Rs. 6140 crore (about 50% higher than in 2017-18) but still quite low return considering massive investments made in PSBs.

The SBI is likely to earn good profits this year (in excess of Rs. 15000 crore post tax considering quarterly income trends). The Government can thus expect to see the dividend income from all institutions (other than RBI) of Rs. 10000-12000 crore in the current year, almost meeting the budget target. The increasing trend in dividend income from financial enterprises of the Government- PSBs and Insurance Companies- is welcome but the yield on investment made is still quite low.

Dividends from non-financial CPSUs

Total receipts from dividends and surpluses during the year 2017-18 from non-financial enterprises and entities was Rs. 46499 crore. It was budgeted at slightly lower at Rs. 45,124 crore in the revised estimates of 2018-19. For 2019-20 budget, the income from the non-financial enterprises and entities is budgeted at Rs. 57487 crore.

There were a total of 13 enterprises which paid dividends in excess of Rs. 1000 crore to the Government of India in 2017-18. As many as 9 of these (Coal India Rs. 8045 crore, IOC Rs. 5535 crore, ONGC Rs. 5275 crore. NTPC Rs. 2531 crore. Nuclear Power Corporation Rs. 2500 crore, Powergrid Rs. 1744 crore, BPCL Rs. 1729 crore, HAL Rs. 1048 crore and NMDC Rs. 1222 crore) were non-financial companies. Rest four only -LIC Rs. 2376 crore. PFC Rs.1366 crore. REC Rs. 1160 crore and GIC Rs.1002 Cr were the financial companies. Statutory authority- Indian Airport Authority of India (IAAI) also paid Rs. 2476 crore as transfer of its surplus.

Company wise data for 2018-19, given in the CAG’s report, will be available only after 2020-21 budget is presented. In aggregate, total dividend and surpluses received from both financial and non-financial enterprises and entities during 2018-19 is Rs. 113424 crore, out of which RBI’s contribution was Rs. 68000 crore.

Excluding RBI’s contribution, all the other enterprises contributed, in all, Rs. 45424 crore, which was Rs. 5277 crore less than the dividend/ surplus received during 2017-18. Of this, Rs. 43056 crore came from all the non-financial undertakings of the Government of India, Rs. 2261 crore from LIC and only Rs. 108 crore from all the public sector banks (PSBs) put together.

The decline in dividends and surpluses from non-financial enterprises is partly explained by transfer of Government’s entire stake in some organisations like HPCL and REC, which was transferred to ONGC and PFC respectively. The dividend HPCL and REC declared did not come to the Government of India. PFC, which acquired REC, did not declare any dividend on account of perceived shortage of capital adequacy. There was also some impact of the dividend share of GOI going down consequent upon sale of further minor stake in several companies as part of the programme of dilution of Government’s equity by way of small stake sale through Offer for Sale (OFS) and Exchange Traded Fund (ETF) routes and also under buy-back programme.

2019-20 has seen major slowdown in the economy. The budgeted dividend/surplus from non-financial companies at Rs. 57487 crore is over 14000 crore higher than the actual contribution of non-financial companies at Rs. 43056 crore. The performance of power companies has been weaker this year as the growth in electricity generation has been very low, at less than 2%, for the year as a whole. Likewise, oil product’s consumption growth is also rising at low growth of about 1.3%. The oil and electricity sector companies are the major contributor to the dividend/ surplus income from non-financial sector. There is some dilution of equity stake of the Government in these companies. The decision of the Government to reduce the rate of corporate tax to 25% will positively impact distributable profits. While some of the companies may not go for taking the advantage of the cut in corporate tax rates this year on account of deferred tax rebates of earlier year etc., some will do the switch-over this year.

Taking all these factors into consideration, it is unlikely that there would be any significant increase in dividend and surplus transfers from non-financial companies. It is unlikely to exceed Rs. 45000 crore- a shortfall of 10000-12000 crore in this head.

Other major non-tax receipts

The Government has a number of other sources of non-tax revenues other than dividend and surplus transfer. Auction of petroleum and other natural resources provide good revenues in the year when auction takes place. Toll revenues from NHAI, fines and penalties recovered by police and quite a few other sources also contribute non-tax revenues.

Total non-tax revenues had come down from Rs. 2.75 lakh crore in 2016-17 to Rs. 1.93 lakh crore in 2017-18. Non-tax revenues, apart from the dividend and surplus transfer, declined from Rs. 1.52 lakh crore in 2016-17 to Rs. 1.01 lakh crore in 2017-18. These revenues are budgeted at Rs. 1,26,012 crore for 2018-19 (RE) and Rs. 1,49,651 crore in 2019-20 (BE).

If one were to take note of the heads of income which contributed Rs. 5000 crore or more under this class of non-tax revenues in 2017-18, the communications services (basically share of adjusted gross revenue as licence and spectrum fee and payment of instalments of spectrum debt) contributed the largest share of Rs. 32066 crore (Rs. 18001 crore of spectrum capital payment, Rs. 6243 crore of licence fee and Rs. 7019 crore of universal obligation levy). Net interest receipts (loans given by the Central Government to States and other entities) brought in Rs. 13574 crore. Petroleum (Profit petroleum- Rs. 5839 crore, Royalties Rs. 4854 crore) raked in Rs. 10879 crore. The roads and bridges sector (largely toll revenues of NHAI: Rs. 8841 crore) contributed Rs. 9064 crore and the police pitched in with Rs. 7496 crore.

Non-tax revenues, other than dividends and surplus transfer, rose in 2018-19 compared to 2017-18. As per provisional accounts, a total of Rs. 2.46 lakh crore was received as non-tax revenues in 2018-19. Receipts from dividend and surplus transfer was Rs. 1.13 lakh crore. Therefore, the contribution of all other sources of non-tax revenues was Rs. 1.33 lakh crore. This was lower than comparable revenue of Rs. 1.52 lakh crore in 2016-17, but higher than the revenue of Rs. 1.01 lakh crore in 2017-18. This was higher than the RE of Rs. 1.26 lakh crore as well.

There is good deal of uncertainty with respect to revenues under communications head. The budgeted receipts from communication revenues for 2019-20 is Rs. 50,520 crore, substantially higher than the actual receipt of Rs. 32066 crore in 2017-18 and RE of Rs. 39245 crore for 2018-19.

The Government, while granting postponement of spectrum debt instalments for 2 years, has not made it applicable from the current year of 2019-20. Therefore, the telecom companies are expected to pay this. The Supreme Court has rejected the petitions of telecom companies to limit past arrears of expanded AGR definition related payments of licence fees and spectrum charges. It seems Airtel will pay, but the Vodaphone-Idea may not be in a position of pay. If it defaults, it might default on spectrum debt repayment as well. The increase in enhanced estimated receipts of Rs. 50,520 possibly also factored in sale of 5G spectrum, but that seems certainly out of question in the current fiscal. It seems finally this target of over Rs. 50000 crore might be exceeded during the current year.

Other sources of revenues from petroleum, roads and bridges and police etc. are steadier and likely to be in line with last year plus some nominal growth. Though uncertainties remain, it might not be out of reason to expect Rs. 1,50,000 crore to accrue from the non-tax revenues (other than dividend and surplus).

Gross expected non-tax revenues in 2019-20

Taking the above analysis in consideration, a higher income of about Rs. 52000 crore from RBI, almost at par with the budget revenue from the other financial enterprises, a short fall of about Rs. 10000 crore from non-financial enterprises and almost as budgeted income of other non-tax revenues, it might be safe to expect that the income of Government from Non-tax Revenues would be about Rs. 40000-50000 crore higher than the budgeted income of Rs. 3.11 lakh crore.

DISINVESTMENT CAPITAL RECEIPTS

Bold move of initiating genuine strategic privatisation but receipts likely to be about half of the budgeted revenues

The disinvestment capital receipts for the Government of India primarily comes from the ‘Non-financial Government of India Companies’. These are the companies, excluding departmental undertakings like Railways and financial companies in banking and insurance sectors, in which the Government of India holds more than 50% shares and includes subsidiaries of such companies. Usually, these companies, a total of 339 companies at the close of financial year 2018’ are referred as Central Public Sector Enterprises or CPSEs. Department of Public Enterprises brings out a Survey of CPSEs every year. A minor part of the disinvestment proceeds comes from sale of Government of India investments in companies where GOI stake is smaller than 50%, most significantly from the legacy investment of GOI in Non-CPSE public companies where either the GOI majority stake had been sold earlier or where such stake was acquired through Special Undertaking created to take over the assets of erstwhile Unit Trust of India. Of late, stake in enemy property (those who went to Pakistan after partition) sold has also been accounted as part of the disinvestment proceeds. Disinvestment made in the Public Sector Banks (PSBs), Insurance Companies (LIC, GIC etc.) is also accounted for under this broad head of Miscellaneous Capital Receipts, but there has not been any disinvestment of such financial entities in the recent years.

CPSEs occupy a very large space in the economic canvass of the country. There were, in all, 339 CPSEs at the end of financial year 2017-18, with paid up capital of Rs. 2.50 lakh crore and reserves and surpluses of Rs. 9.42 lakh crore. 257 of these 339 CPSEs were operating entities. The CPSEs earned total income of Rs. 20.34 lakh crore and net profits of Rs. 1.28 lakh crore in 2017-18. 184 of these CPSEs were profit making and returned a net profit of Rs. 1.60 lakh crore (there is some double counting involved as e.g. profits of Mahanadi Coal, which is subsidiary of Coal India is counted again as profits of Coal India when Coal India receives it as dividends from Mahanadi), whereas loss making entities all together made a net loss of Rs. 31261 crore. Top 10 companies earned about 62% of total profits of the profit-making companies, with three top companies- Indian Oil, ONGC and NTPC about one third of total profits. BSNL was the largest loss-making entity with losses of about Rs. 8000 crore, followed by Air India and MTNL with losses of about 5300 crore and Rs. 3000 crore respectively. CPSEs together contributed gross value added (GVA) of Rs. 7.17 lakh crore, which was a little less than 5% of the GVA of the Indian economy. The CPSEs declared a total dividend of Rs. 76578 crore, of which these CPSEs paid Rs. 42312 crore as dividend to the Government of India. 52 CPSEs were listed on stock exchanges as on 31^st March 2018 and had a total market capitalization of Rs. 15.22 lakh crore, which is approximately 8% of total market capitalization.

GoI received an amount of Rs. 88970 crore in 2017-18 from disinvestment comprising Rs. 2802 crore of the face value of shares sold and Rs. 86168 crore of premium received on disinvestment of government equity holdings. Rs. 11075 crore was also received and treated as disinvestment receipts. In total, the disinvestments proceeds at Rs. 100005 crore exceeded Rs. 1 lakh crore for the first time in India’s history.

DIPAM, the Department responsible for disinvestment and strategic disinvestment, made a total of 30 transactions of disinvestment during the year generating disinvestment receipt of Rs. 40231 crore in the process. Largest proceeds accrued when CPSE shares of Rs. 14500 crore were sold as part of Bharat 22 ETF. NTPC’s 6.63% equity stake was sold in single biggest individual disinvestment at Rs. 9117 crore. Other major transactions included 10% stake sale in the IPO of Hindustan Aeronautics Ltd which generated Rs. 4055 crore, 2.52% of sale of NMDC equity at Rs. 1223 crore, 9.2% stake sale of NALCO at Rs. 1192 crore. IPO of HUDCO yielded Rs. 1207 crore. A few buyback transactions by the Government were also done- Oil India 5.6% stake at Rs. 1135  crore, Engineers India 6.64% at Rs. 658 crore. There were a few transactions meant for only the employees of the CPSEs. Strategic sale of HPCL to ONGC yielded the Government Rs. 36915 crore. Sale of equity stakes held in SUUTI and income from stake held contributed Rs. 4154 crore.

Disinvestment target for 2018-19 was pegged lower at Rs. 80000 crore initially. The Government finally realized Rs. 84, 972 crore from the disinvestments, including strategic disinvestment carried out. A total of 22 transactions of disinvestments carried out yielded Rs. 62900 crore. A total of 4 strategic disinvestments were carried out during the year as well. The largest, of course again was a sale to another CPSE- entire Government stake in REC was sold to another power major PFC Ltd. at Rs. 14500 crore. Other three transactions were also stake sale to other CPSEs. Dredging Corporation was sold at Rs. 1049 crore to a joint venture of CPSEs of Shipping Ministry. HSCC Ltd. and NPCC Ltd were also sold. These were more in the nature of consolidation of similar businesses under one CPSE rather than many small companies doing the same thing. SUUTI is holding significant stake in couple of major companies like ITC Ltd, L&T Ltd. and Axis Bank. During 2018-19, a good chunk of shares held by SUUTI in Axis Bank were sold for a total of Rs. 5379 crore.

The Government has planned a hefty target of Rs. 1.05 lakh crore to be raised as receipts from the disinvestment. There are 58 CPSE companies currently listed on the stock exchanges, with a market capitalization of approximately Rs. 12.50 lakh crore, which amounts to a little more than 8% of the total market capitalization.

The Government has adopted a very different strategy of disinvestment this year. There has not been a single Offer for Sale (OFS) transaction this year so far. Nor has there been any stake sale to employees or a buyback in the first nine months of  the financial year. There have been two Initial Public Offering (IPO) and two biggish ETF sale. Two railways companies- Rail Vikas Nigam (RVNL) and Indian Railways Catering and Tourism Corporation (IRCTC) have been listed. These two companies resulted in disinvestment proceeds of Rs. 476 crore and Rs. 4369 crore coming to the Government. IRCTC share attracted enormous interest and was oversubscribed 112 times. Two ETF transactions were follow-on offer on previously listed ETFs. CPSE-ETF FFO-V raised Rs. 10000 crore for the Government whereas Bharat 22 ETC- FFO2 could get Rs. 4369 crore.

In all, these four issuances have met about 1/7^th of the Disinvestment target, raising all together Rs. 15483 crore. Government has also raised Rs. 1881 crore by selling ‘enemy shares’ -essentially WIPRO shares held by the individuals and families which have migrated to Pakistan. Strictly speaking, such proceeds are not disinvestment receipts, but are being accounted as disinvestment receipts.

The Government has clearly laid out its intent to carry out real strategic disinvestment this year. The Cabinet approved on 20^th November decisions to strategically sale three major companies- BPCL, Shipping Corporation (SCI) and Container Corporation (CONCOR). Entire GoI stake (53.29%) in BPCL, 63.75% stake in SCI and 30.8% out of 54.8% stake in CONCOR were decided to be sold to ‘strategic buyer’. These transactions will be first real stake sale after 2003-04. In addition, the Cabinet also decided to consolidate CPSEs in power sector by approving sale of entire GOI stake in Tehri Hydro Development Corporation (THDC: 74.23%) and North Eastern Electric Power Corporation (NEEPCO: 100%) to NTPC ltd. Last two companies are unlisted. Market capitalization of BPCL is about Rs. 1.03 lakh crore, of SCI about Rs. Rs. 2900 crore and of CONCOR about Rs. 16000 crore. These stake sale, if carried out, can provide the Government, at current market valuation, about Rs. 55000 crore from BPCL, about Rs. 1850 crore from SCI stake sale and about Rs. 5000 crore from CONCOR, in all about Rs. 62000 crore. It would be reasonable to expect a control premium of 20-25%, which should bring in another Rs.13-14000 crore, in all generating Rs. about 75000 crore for the Government. Net Worth of THDC at the end of FY 2018-19 was Rs. 9280 crore and that of NEEPCO Rs. 6300 crore. At price to book of 1, the Government should be able to get about Rs. 15000 crore from these two companies.

The Government seems to be banking on the proceeds from these five transactions to complete its disinvestment target this year as together these five strategic disinvestments can provide close to Rs. 80000 crore. Difficulty, however, is that genuine strategic sale has not actually been carried out even for one single transaction in last 15 years. Carrying out strategic disinvestment is an extremely process intensive task and it would be still more cumbersome to do so for the three listed entities.

There is a real danger of the Government missing its disinvestment target this year. The process of putting on sale the five companies identified for strategic sale has not proceeded in a manner that all these transactions get completed before 31^st March, 2020. If BPCL transaction is missed, which makes up more than 75% of the likely value of Government stake in these companies, is missed, there is no way, the Government can raise a lakh crore from disinvestment this year. It is quite unlikely, but if the Government were to sell BPCL to IOC, a la HPCL- ONGC transaction, it would be disastrous for both disinvestment programme as well as for IOC & BPCL. Even the sale of NEEPCO and THDC, without retaining the management control as was announced after the Cabinet decision, seems to be moving quite slowly.

Considering the progress of strategic disinvestment process in the five entities dealt with above and relatively slower progress of normal minor stake sale programme, it is likely that there would be a shortfall of Rs. 50000-60000 crore in the disinvestment revenues this year.

Some other initiatives

The Government initiated a new public sector debt raising instrument, which is also retail friendly, this year. A Debt ETF- Bharat Bond ETF- was launched to use the proceeds thereof for investment in debt securities of 12 public authorities like NHAI and CPSEs like Powergrid, IRFC etc. This ETF has enabled retail investors to invest in bond securities of AAA bond papers at very low cost. This issue was oversubscribed and raised around Rs. 12000 crore. The Bond ETF is however not disinvestment. It does not bring any disinvestment proceeds for Government of India.

There has been a constant messaging throughout the year that the Government would sale entire stake in Air India this year. Specific process steps have been initiated but there seems to be very low investor interest. At one stage, the Civil Aviation Minister spoke of closing the Air India if the Government does not succeed in finding a buyer for the airline. It is unlikely that there would be any stake sale in Air India in FY 2019-20.

The Government has also approved a decision to allow government shareholding to fall below 51% provided management control remains with the Government. It has also been signaled that major CPSEs where Government holding is closer to 51% like NTPC, Powergrid etc. might see their shares being disinvested in minority stake sale mode. While no specific limit has been indicated in the press release to which the Government stake can fall below 51%, the market has assumed that there can be a large supply of the equity shares from these otherwise very strong companies. This has depressed the share prices of the companies like NTPC, IOC, ONGC and Powergrid.

Communication of the Government intention of minority stake sale in CPSE where Government stake is to be brought below 51% needs to be also made clear and unambiguous. It would be necessary that what is the extent to which the Government would go in a company and then go ahead with selling that stake soon. Otherwise, overhang of unknown large supply coming at unknown time will keep the stocks of these companies reeling under pressure.

CONCLUSION

From the perspective of non-tax income and receipts, 2019-20 will be an eventful witnessing some extra-ordinarily positive events and a few misses. Initiation of strategic stake sale in BPCL, CONCOR and SCI was a path-breaking measure and if carried to its logical end, privatisation agenda, stalled for last more than 15 years, would come back on track. These three transactions would lay foundation for a much more ambitious programme of disinvestment of central public sector undertakings. If this larger and more ambitious programme of strategic disinvestment can be announced, company by company, in the Budget 2020-21, it would send very clear and positive message and the team DIPAM would also have time to plan and execute the transactions during the whole of 2020-21.

Another extremely positive outcome for the Government was the receipt of extra-ordinarily large surplus transfer from RBI. The Government received about Rs. 1.5 lakh crore, which was higher than the transfer received in last three years together. It is unlikely to continue in 2020-21, but if the RBI does not end up retaining any part of surplus in 2020-21 distribution, the Government can expect to get about Rs. 90000 crore. If RBI retains, it might be about Rs. 10000 crore less.

Total revenues from the non-tax revenues for FY 2020-21 are expected to be higher by about Rs. 50,000 crore but expected shortfall in the disinvestment receipts of almost equal amount will most likely make the non-tax receipts (both non-tax revenues and disinvestment capital receipts taken together) come at almost same level as budgeted at Rs. 3.11 lakh crore.

SUBHASH CHANDRA GARG

NEW DELHI  16/01/2020