Divestment may turn out to be the only saving grace for the fiscally strained government, if it manages to build up an initial momentum on the stake sale process.
A back-of-the-envelope calculation shows the government may even be able to exceed its target of Rs 30,000 crore from the sale of its stake in public sector companies.
The Cabinet Committee on Disinvestment will soon take up the sale of residual stake in Hindustan Zinc and Balco, from which the government’s aim is to raise Rs 19,000 crore, a report in Business Line today said.
Anil Agarwal of Vedanta, which owns Balco and HZL, has offered Rs 17,000 crore for the balance stake in both the companies.
The government is also eyeing Rs 4,000 crore from the auction of a stake in SAIL.
Apart from these, the government can cash in on the stakes that SUUTI – the Special Undertaking of UTI – holds in various blue chip companies.
SUUTI holds 896.7 million shares in ITC, 50.5 million shares in L&T and 97.2 million shares in Axis Bank, according to an earlier report in Financial Express.
At the current market price, the aggregate value of these stakes is more than Rs 40,000 crore. But how much the government will be able to capitalise on this remains to be seen as public sector banks had earlier expressed doubts about this plan.
“Meeting the divestment target will not be difficult this year, if the government is not looking at the valuation,” said Madan Sabnavis, chief economist, CARE Ratings.
The stock market has not been going great guns until now this fiscal.
And Sabnavis does not expect a strong bounce-back this year either.
“India has been quite a bearish story among foreign/domestic investors over the year,” Citi said in a recent research report, adding “Investors are buying, but playing a little safe.” Citi has a Sensex target of 18,400 for March.
The government’s fiscal situation is under strain as its tax revenue is seen declining, as the economic slowdown bites harder.
The Reserve Bank of India has cut the GDP growth target for the year to 6.5 percent. Various brokerages have already cut their estimates for GDP due to the deficient monsoon.
Offsetting 2G auction shortfall
The government may well be able to even offset a likely fall in 2G auction mop-up if the stake sale sails through, says Sabnavis.
The government has set a Rs 40,000 crore target from the auction of 2G spectrum, which is expected to start from November.
According to a report in Business Standard, the government is likely to collect just Rs 16,000 crore at the base price of Rs 14,000 crore of 5 MHz of radio bandwidth in the 1,800 Mhz band for GSM operators.
“The target will be met only if telecom operators, which are finding even the current reserve price too high amid stretched balance-sheets and shrinking margins, raise the bid to at least 2.5 times the base price, or pay the entire money upfront instead of installments,” the BS report said quoting finance ministry officials.
Under the current circumstance, the government may be able to offset the shortfall if it manages the disinvestment well and the market remains steady.
The fiscal situation of the government is unlikely to get a major boost from this whatsoever, as the divestment proceeds are unlikely to help it fill the deficit in tax revenue. But any extra money helps.