Govt expected to set aggressive divestment target in Budget 2023

Govt expected to set aggressive divestment target in Budget 2023
The government kicked off its annual Budget-making exercise for the financial year 2023-24 on October 10, 2022, with officials from the Finance Ministry indicating that the upcoming Budget would not focus to make any radical changes. It would rather aim on keeping a lid on inflation and ensuring affordable energy and agricultural inputs.
In a fireside chat at the Brookings Institution in Washington DC, Finance Minister Nirmala Sitharaman stated "Growth priorities will be kept absolutely on the top for the upcoming Budget 2023" and the ministry was committed to the fiscal glide path proposed in the last Budget.
The Confederation of Indian Industry (CII) suggested aiming on job creation through increased capital spending, rationalizing GST, and maintaining corporate tax levels to the FM.
They are also batting for income tax cuts to enhance disposable incomes at a time when the recession in advanced economies will chip away at some of the domestic growth momentum particularly because of slowing exports.
It is vital to keep in mind that this will be the last full budget for the current government since the 2024 budget will only be an interim one given general elections due in early 2024.
Hence, the government will try its best to put more income in the hands of the rural population, keep splurging on growth, and may also have an aggressive divestment target in mind considering the current & last year didn’t add up to much on that front.
Even though the government has raised only Rs 250 billion out of the Rs 650 billion target for this fiscal year (April 2022-March 2023), it is optimistic about meeting the target as it is counting on the sale of its residual stake in Hindustan Zinc, IDBI and Shipping Corporation of India.
Finance Minister Sitharaman last year declared plans to privatise all state-run companies barring a few in strategic segments like defense and telecommunications.
The government has shelved the strategic disinvestment of Bharat Petroleum Corporation, which was likely to bring in Rs 500-600 billion.
While some voices state that it is time for the government to moderate its FY24 target given that it has missed its targets the last 3 years, it is likely the Govt would continue to set an aggressive target given the background of growth push with government spending.
A boost to INR and bond prices might come from India’s inclusion in several bond indices. Hopes this year were high of a potential inclusion, especially after hurdles such as Euro clear requirements were overcome.
So, the status quo has not changed, with JP GBI-EM Index not making any changes and FTSE continuing to keep India on its “watchlist”, where we have been since March 2021.
As things stand, the inclusion of IGBs in JP GIB-EM could require a lead time of 9 months or longer.
Tangible benefits from any inclusion are likely to take time too - the inclusion may result in passive flows of $30 billion ($22 billion from JP GBI EM and subsidiaries), but only after the weight increases by a significant ration, which is expected to take time.