9th July 2024 (11 Topics)
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The Government's Stake-Selling Agenda: If Not Now, Then When?
Context
The Indian stock market is hitting new highs, with the market capitalization of Public Sector Undertakings (PSUs) nearly doubling from $404 billion in 2022-23 to $804 billion currently. This presents a unique opportunity for the government to accelerate its disinvestment agenda and generate resources for infrastructure development and job creation.
PSU Performance and Market Rally:
- Market capitalization surge: PSU market cap has almost doubled to $804 billion, exceeding the total budgeted expenditure of $560 billion in the 2024-25 interim budget.
- Record profitability: PSU profits are expected to reach around 2% of GDP, with PSUs attaining record high returns on equity.
- Outperformance: PSU and public sector bank (PSB) stocks have significantly outperformed their private peers and the broader market.
Government's Stake-Selling Opportunity:
- Disinvestment target: The government has set a divestment target of $6 billion for 2024-25, 67% higher than the revised target of $3.6 billion for 2023-24.
- Compliance with regulations: Many PSUs, especially banks, have government stakes exceeding Sebi's 75% maximum shareholding norm, providing room for stake sales.
- Monetization benefits: Stake sales can help improve market liquidity, generate resources for infrastructure development, and create jobs.
Challenges and Strategies for Disinvestment:
- Hurdles: Disinvestment faces challenges such as multiple stakeholders, extended regulatory processes, global economic volatility, and political opposition.
- Alternative methods: Experts suggest using offer-for-sale (OFS) mechanism, block deals, or selling small quantities in the secondary market to overcome challenges.
- Past performance: Of the $50 billion raised from divestments in the last 10 years, $37.5 billion came from minority stake sales.
UPSC Mains Questions:
Q. Evaluate the government's disinvestment strategy in light of the recent surge in PSU market capitalization. How can this opportunity be leveraged to achieve broader economic goals?
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