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Budget may aim higher on PSU selloff
Govt is likely to be more aggressive in selloff of state-run firms but may restrict its offers to minority holdings.
India's ruling coalition is likely to be more aggressive in the coming year in selling stakes in state-run firms, but will restrict its offers to minority holdings in order to keep its Left allies sweet.
Under pressure to meet spending pledges and also cut the deficit, analysts and officials expect the Government to prepare the Parliament for Rs 80-100 billion ($1.8-$2.3 billion) in asset sales when it unveils Budget 2005-06 on February 28 -- about four times as much as it raised in 2004-05.
The Congress-led coalition's Left backers have made clear they will not accept sales of majority stakes in profitable state entities, but analysts say a plan for more, smaller offerings is likely to be acceptable.
"I don't think the allies will be strongly opposed to selling minority stake sales. There is some leverage there," said economist with domestic credit rating agency CRISIL DK Joshi.
The Government has set up an investment fund for privatisation proceeds, which it vows will be used for health care, education and supporting other state firms.
Analysts say this should blunt any opposition from the Left, who have also insisted sale proceeds should not be used for bridging India's sizeable Budget deficit.
"The new approach could be more appealing to the Leftists owing to its targeted spending on social areas without giving up management control," said economist with JP Morgan Chase Bank in Singapore Rajeev Malik.
CASH STRAPPED
The Government shocked financial markets shortly after taking power last May when it bowed to Left pressure and scrapped the Disinvestment Ministry.
The Left opposed the previous Government's policy of privatising profitable state firms, saying it amounted to selling the family silver and led to job losses.
This Government has undershot its own asset sales target this financial year, raising Rs 26.8 billion from a five per cent equity sale in India's top power generator, National Thermal Power Corp.
That was short of budgeted privatisation proceeds of Rs 40 billion, the equivalent of 1.3 per cent of budgeted revenues.
After being elected on pledges to improve conditions for 260 million people living below the poverty line, the Government is facing calls from the far Left to fund projects for the poor.
But room for manoeuvre is limited due to a fiscal law which binds it to cutting the Budget deficit annually from around 4.4 per cent of gross domestic product expected this fiscal year.
WHAT MIGHT BE ON OFFER
Some of the firms in which the Government could sell minority stakes are Power Finance Corp, Powergrid Corp, Oil and Natural Gas Corp and Hindustan Petroleum Corp.
"A five-10 per cent dilution in the oil firms would give the Government a substantial amount of money," said chief economist at Kotak Securities Shubhada Rao.
The Government has said it will offer a 10 per cent stake in engineering firm Bharat Heavy Electricals Ltd and up to eight per cent stake in India's top car maker, Maruti Udyog Ltd. It currently owns 67.7 per cent of BHEL and 18.3 per cent of Maruti.
Based on current prices, the Government would raise raise Rs 16 billion from 10 per cent of BHEL and Rs 8-9 billion for up to eight per cent of Maruti.
Analysts say the Government would do well to reap the benefits of a booming stock market. The benchmark 30-share Bombay index hit a record high of 6,719.20 points this week.
"It will be positive for the market as it increases the supply of fresh and quality paper," said chief investment officer at SBI Mutual Fund, which oversees about Rs 60 billion, N Sethuram.
"I think the Government can raise up to Rs 100 billion through disinvestment next year."
