The government’s plan to raise capital by disinvesting its stake in various public sector undertakings (PSUs) got off to a flying start on Friday with its offer-for-sale of 5% stake in public steel sector firm Steel Authority of India Ltd (SAIL) getting oversubscribed by over two times, mopping up Rs 1,715 crore for the national exchequer.
Revenues from selling shares in state-owned companies is critical to the government’s plans to keep the fiscal deficit — shorthand for the amount of money the government borrows to fund its expenses — at 4.1% of GDP in 2014-15.
A shortfall in revenues may prompt the government to raise indirect taxes — it has already done it twice in petrol and diesel in the last two months — hurting prices.
The high demand for shares of SAIL, both with retail investors (oversubscribed 2.6 times) and non-retail sector (oversubscribed 1.8 times), could pave the way for speedier disinvestment in various other PSUs.
“In order to facilitate retail investors, a 5% price discount was offered to them,” a finance ministry statement said.
In September, the government had approved share sale plans in three major state-owned companies — Coal India Ltd (CIL), NHPC and Oil and Natural Gas Corporation (ONGC) — that can potentially earn the exchequer about Rs 44,000 crore.
There are, however, a few roadblocks that the government may have to overcome. Upstream firms such as ONGC sell crude to domestic oil retailers at a discount linked to global crude prices.
The discount rate rising over the years and the fall in the crude prices recently has had a bearing on ONGC’s bottomlines. The company wants this issue to be resolved before divesting the government stake.
Labour unions, on the other hand, are opposed to stake sale in CIL, which could upset disinvestment plans and have threatened to go on strike if the government goes ahead with the stake sale.
The government has budgeted to earn Rs 43,425 crore target by selling shares in public sector companies in 2014-15. Besides, it also hopes to earn another Rs 15,000 crore by selling minority stakes in non-government firms such as ITC, L&T and Axis Bank.
India has missed its disinvestment target for five consecutive financial years. Last year, it could raise only Rs 16,027 crore, against the budgeted Rs 40,000 crore.
The Securities and Exchange Board of India has made it mandatory for listed PSUs to pare government shareholding to 75% within the next three years.