What’s the news?
This week was dotted with three important developments that indicate that the central government is keen to proceed with its reform agenda.
- Government raises Rs 8,846 Cr through the sale of its stake in Tata Communication
- Parliament approves bill to hike FDI in Insurance and
- Government introduces DFI bill in the Lok Sabha
What does that mean?
The government has raised Rs 8,846 crore through the sale of its 26.12 % stake in Tata Communications Ltd inching it closer to its disinvestment target for FY21. The government has already sold a 16.12 % stake through an offer for sale (OFS) to retail at Rs 5,457 Cr and 10% to a strategic partner, at an OFS discovered price, for Rs 3,389 cr.
For FY21, The Union finance ministry had set itself a disinvestment target of Rs 32,000 Cr (lower due to the covid pandemic). With the proceeds from the sale of its holding in Tata Communications, the government has reportedly gained Rs 31,006 Cr through divestments this fiscal year. The government budgeted Rs 1.75 lakh crore from stake sale in public sector companies and financial institutions, including 2 PSU banks and one insurance company, in the next fiscal year.
The Parliament passed the insurance amendment bill 2021 – effectively increasing the FDI limit in the insurance sector from 49% to 74%. This move could result in the accelerated growth of the sector and could unleash a large amount of foreign investment. India is an under-penetrated market from an insurance perspective and the move by the government is aimed at bridging the gap.
The central government also tabled a bill in parliament that could pave the way for the formation of a Development Finance Institution (DFI). This institution will have a crucial role to play in the governments increased infrastructure spending plans.
How does this impact you and your investments?
With the disinvestment policy, the government can reduce its debt liabilities and raise money for investments in other parts of the economy such as building infrastructure or increased spending on providing welfare to the poor in the country.
The ability of the government to execute on its reform agenda will instil confidence in the economy and that will bode well for all investors.