The government’s ambitious disinvestment programme may fall short of its expectations and be inadequate to bridge the mounting fiscal deficit. After receiving lukewarm response to the much-anticipated public issue of the state-run power major NTPC, the government is thinking of revising its strategy.
Disinvestment Secretary Sumit Bose today called a meeting of his department's officials to discuss the response to NTPC's follow-on public offer. It could manage a subscription of just 1.2 times on its closing day. They are also understood to have discussed NMDC follow-on offer, which is likely to be launched in the second week of March.
Sliding revenue receipts and spiraling expenditure compelled the Ministry of Finance to pin all its hopes on the proceeds from disinvestments of public sector undertakings (PSUs) and the auction of 3G wireless spectrum. While the PSU disinvestments may not yield the desired results as markets show weakness, the 3G auction could be postponed for the next financial year.
The government budgeted for revenue (estimated at Rs 35,000 crore) from the sale of 3G spectrum this financial year. A delay in auction beyond March 31 may push the fiscal deficit beyond 6.8 per cent in the current year, compared with 6.2 per cent in 2008-09. The government is aiming a fiscal deficit of 5.5 per cent in 2010-11 and 4 per cent in 2011-12.
Economists agree the markets do not look good. And, the fate of the future IPOs may not be different from NTPC. They feel the fiscal deficit is bound to increase, unless there is some cap on government expenditure. “The government may have to exceed its borrowing target for the year, if the disinvestment proceeds fall short of expectations,” a market expert said.
Suresh Tendulkar, former chairman of the Prime Minister’s Economic Advisory Council, said: “If the auction of 3G is delayed and the government is not able to increase the proceeds from disinvestment, fiscal deficit may rise. Markets all over the world do not look favourable. It is a matter of concern.”
Former RBI governor Bimal Jalan said disinvestment was desirable, but the markets were not high enough.
Earlier, the government had planned to come up with one public issue every three weeks. The idea was to have 17-18 issues next year and an equal number the following year. Now it may allow PSUs to hit the market only when conditions are favourable, according to sources.
The Department of Disinvestment has prepared a list of 30 companies for possible disinvestment. While NTPC, NMDC, Satluj Jal Vidyut Nigam Ltd and Rural Electrification Corporation are on the disinvestment agenda before March 31, Steel Authority of India and MMTC would enter the stock market next year. Out of the PSUs going to the market in 2009-10, only NMDC and NTPC are the big ones.
RBI recently raised the cash reserve ratio by 75 basis points, which sucked out about Rs 36,000 crore from the system. Bankers, however, said it was not the reason for the lukewarm response to the PSU’s public issue, as there was ample liquidity in the market.
Under the government’s disinvestment policy, unlisted PSUs earning net profit for the last three years would be listed and all profitable listed PSUs not meeting the mandatory public shareholding of 10 per cent would be made compliant. There are 10 listed PSUs where public holding is less than 10 per cent and around 50 unlisted state-run firms which are profitable.
