India Struggles to Meet Divestment Targets as Elections Shift Priorities

India's Divestment Targets Likely to Fall Short by Half This Year, Say Sources

India will miss divestment targets by over 50% this year, according to sources.

New Delhi, Nov 24 (ANBLE) – India’s plan to raise funds through the sale of state-run firms is facing a major roadblock. According to sources, the government will struggle to reach even half of its divestment target due to shifting priorities caused by upcoming elections. This will mark the fifth consecutive year in which India misses its divestment goals. While the government initially aimed for 510 billion rupees ($3.60 billion) in divestment proceeds for the current fiscal year, it is now estimated to fall short by 300 billion rupees. The setback is primarily due to delays in the vetting of potential buyers for IDBI Bank and the postponement of state-owned NMDC Steel’s privatization. These delays have pushed the divestment timeline beyond the 2024 federal elections.

A Bumpy Road to Divestment

The process of divestment in IDBI Bank has been hindered by the Reserve Bank of India’s (RBI) slow decision-making, leading to an extended timeline for the sale. Similarly, the sale of NMDC Steel will not conclude this year due to state and federal elections, as the major mineral-rich employer faces unions protesting against the sale.

Falling Short of Expectations

While smaller divestments may still be achieved in the current fiscal year, the overall target will remain significantly out of reach. Prime Minister Narendra Modi’s government has struggled to sell companies in various sectors, including steel, fertilizer, and oil and gas, since 2019. Challenges such as land ownership disputes and union opposition have hampered the government’s divestment plans. Former federal finance secretary, Subhash Chandra Garg, even suggested that no privatization will take place during this government’s tenure due to a lack of political interest.

Looking for Alternatives

Although the divestment target may not be met, the government remains hopeful. Higher dividends paid by state-run firms have helped offset some of the shortfall. The government has already received 203 billion rupees in dividends out of its 430 billion rupees target. This, along with meeting fiscal targets, assures the government that the expected fiscal deficit of 5.9% of GDP will not be affected by the delays.

Missed Opportunities

Despite record highs in the Indian markets this year, with the state-owned entities index reaching an all-time high of 13,242 on Nov. 16, the government has only managed to sell minority stakes in five of its companies through stock exchange offers for sales. The potential for more divestments remains unexplored.

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Interacting with Readers

While it may be disappointing to see India struggle with divestment targets, it’s crucial to acknowledge the challenges and competing priorities that arise during election periods. As the government focuses on electoral matters, meeting the fiscal deficit target and ensuring steady economic growth become essential. What are your thoughts on this issue? Do you believe the government will be able to overcome these obstacles in the future?

$1 = 83.2440 Indian rupees

Source: The Thomson ANBLE Trust Principles

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