Four finance ministry officials with direct knowledge of the matter said that with the stake-sale target looking increasingly difficult to reach, they were preparing to take a decision early in the new year on other ways to raise cash.
"We will see which companies have good cash reserves," said one of the officials. "If they (companies) have made good profits and have no immediate plan to spend the money, we may ask for a special dividend."
Sales of stakes in state-run companies are critical to Finance Minister P Chidambaram's plan to mend strained public finances and prevent a budget blow-out that would put India's investment-grade credit rating in peril.
Indian debt is ranked at the bottom of investment grade and Standard & Poor's has a negative outlook. A cut would put India into "junk" status, raise its borrowing costs and possibly spark fresh panic in financial markets. The rupee fell as much as 20% this year, before recovering, amid an economic slump.
Half way through the 2013/14 fiscal year, the programme faces serious challenges, including squabbling among ministries. This month, a global roadshow to drum up interest from investment bankers in the sale of 10% of Indian Oil Corp (IOC) was cancelled at the last minute after the oil ministry backed out.
So far, Chidambaram has raised Rs 1,433 crore from asset sales, or around 3% of the full-year target of Rs 55,800 crore.
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He told Reuters last week he was confident of meeting the stake-sale target, or getting close to it "like last year". Last year, however, he fell short of the target by 20%.
"If it does not gather steam by December, the target will have to be revised down," said another official, adding any revision would depend on the outcome of stake sales in IOC and Coal India , now planned between November and December.
A shortfall in sale proceeds this year will compound the formidable challenges Chidambaram faces. The economy is growing slower than the official forecast, hurting tax revenues. He is widely expected to meet his deficit target, but he may yet have to find other revenue sources or cut deeper into spending.
Ministry officials are already predicting spending cuts of Rs 20,000 crore or more to ensure they hit the deficit target of 4.8% of gross domestic product this fiscal year.
Since even those cuts may not be enough, finance ministry officials are considering asking for more dividends from state-run firms than the Rs 29,870 crore in dividend income they budgeted back in February for the current fiscal year.
INTERNAL SQUABBLING
In his February budget, Chidambaram was banking primarily on share sales in refiner IOC and Coal India, the world's biggest miner, but both are held up as ministries argue over the timing.
IOC's share sale, expected to fetch about Rs 4,000 crore, was set for this month. The finance ministry had lined up investor roadshows in Asia, Europe and the United States, but just as officials were packing their bags early this month, the oil ministry pulled out at the last minute. The finance ministry learnt of the pull-out from TV news channels.
The oil ministry cited the refiner's weak share price and uncertainty over a new fuel-subsidy formula as reasons for pulling out. Chidambaram then stepped in, and officials say the share sale has been tentatively rescheduled for December.
The Coal India stake sale is also stuck, due to opposition from labour unions. The government has cut the stake sale to 5% from 10%, halving the expected sale proceeds to Rs 10,000 crore. To make up the difference, the finance ministry is considering asking the coal miner to buy back 5% of the government's 90% holding. Alternatively, the miner would be asked to pay an additional dividend.
Last year, the government succeeded in making a late push on asset sales, having only raised 5% of budgeted proceeds in the first six months, but officials say the window is closing fast this year and fear that they cannot repeat that feat.
From mid-December, global investors drift away for Christmas and new year holidays. And when they return to work, India will be approaching elections and the US Federal Reserve may be a step closer to reducing its bond-buying programme, two prospects that could make them think twice about investing in India.
Finance ministry officials said they still hoped Coal India would finally hit the market in December, after state elections.
HINDUSTAN ZINC, BALCO
The government also plans to sell residual stakes in miners Hindustan Zinc and Balco, in which Vedanta Resources has a majority stake. Those auctions could fetch about Rs 19,000 crore, one of the officials said.
But the mining ministry wants parliamentary approval before the Hindustan Zinc sale goes ahead, and the Balco sale may need special approval from the markets regulator.
India's disinvestment department, which oversees the asset sales, also hoped to raise Rs 1,600 crore via a buy-back of government-held shares by hydro power producer NHPC . Another Rs 3,500-4,000 crore are expected to come from share sales in Power Grid and Engineers India .
Separately, the government is looking to sell its shares through an exchange traded fund in profitable state-run firms where its stake is above 51%. Officials say the fund is likely to be in place as early as end-November and should help raise Rs 3,000-5,000 crore.