Finance

Defence Ministry is 'in no hurry' to divest in HAL, BEL

With OROP around the corner, Ministry wants to hold on to profit-making PSUs

The Ministry of Defence (MoD) is likely to emerge as a significant hurdle in the Centre’s disinvestment plans to raise ₹56,500 crore in fiscal 2016-17. The Centre’s scheme envisages selling stakes in some of the high-value defence public sector units (DPSUs) such as Hindustan Aeronautics Ltd (HAL) and Bharat Electronics Ltd (BEL).

A cash-strapped MoD is “not keen” to listen to the Finance Ministry’s call for selling its stake in the profit-making DPSUs, a senior official told BusinessLine.

The Budget for 2016-17 did not have much to offer the MoD, which on one hand finds its hands tied as far as defence acquisitions is concerned, and on the other is forced to keep aside a substantial sum for One Rank One Pension (OROP).

The allocation for the defence sector for 2016-17 is ₹2,49, 099 crore, which is barely 1 per cent more than the ₹2,46,727 crore allocated in 2015-16.

Out of this, the MoD has set aside ₹82,000 crore for pensions, squeezing the money from capital acquisitions that stands at ₹70,000 crore compared to around ₹ 77,000 crore allocated last fiscal.

The Centre has approved the disinvestment of two DPSUs so far.

This includes 5 per cent paid-up equity of BEL out of the Centre’s shareholding of 75.02 per cent through an Offer for Sale (OFS), and 10 per cent paid-up equity of HAL through an Initial Public Offering (IPO).

Different idea

On being asked about the MoD’s stance on these stake sales during a press briefing last week, Defence Minister Manohar Parrikar had said: “I have a different idea on this issue. I will tell them (Finance Ministry) when they approach.” Earlier, Minister of State for Defence Rao Inderjit Singh told the Rajya Sabha that while the Centre has decided to divest its stake in HAL and BEL, a strategic sale of DPSUs is “not contemplated.”

Favouring a share dilution in defence undertakings, Harish HV, Partner, Grant Thornton India LLP, said: “The DPSUs should be exposed to market forces and not be compelled to do business with only one customer, which is the MoD. These are valuable and profit-making firms, so we should not hold on to their disinvestment any more.”

Gaurav Mehndiratta, Partner (Tax), KPMG in India, stated: “It is time the DPSUs were made accountable to the public while making their operations more transparent. The MoD should not have a problem with the liquidation of these entities.”

This article was published in the Hindu Business Line, to read please click here.