Finance secretary Montek Singh Ahluwalia yesterday indicated that the government would soon permit buyback of shares through requisite amendments to the Companies Act.
Ahluwalia was also confident of meeting the Rs 5,000 crore disinvestment target for the year, through a mix of strategic sales and regular disinvestment. The latter will entail simultaneous offering of equity, both domestically and abroad. The domestic offering will be at a discount, he added.
Speaking to reporters at the Euromoney conference, he said the Department of Company Affairs (DCA) was looking into the issue. "There has been speculation on allowing buyback of shares. This is for the Department of company Affairs to do and not a matter being dealt by the finance ministry. This would require amendment to the Companies Act and the approval of the cabinet. The DCA will have to decide whether they must have a comprehensive Companies Bill," Ahluwalia said.
On disinvestment, he said the government was confident of meeting the target. "We have got cabinet approval. We are now setting up a mechanism for each company," the finance secretary said. He said July and August are not good months for such floats.
He added: "We have always intended to do both international and domestic issues, because the Indian investor must also be given a chance. Also, the stock markets are looking for a spate of good issues." He said individual investors may be given shares at a discount on the prevailing price at the time of the issue.
He said that for institutional investors, the government may go through the book building process, where the institutions offer a price and the quantity it intends to purchase.
On the four companies that have been put up for strategic sale, Ahluwalia said that the government is willing to offer complete management control.
Earlier, while delivering the keynote address at Euromoney conference, Ahluwalia said it was too early to make an assessment of the impact of sanctions on the economy. He pointed out: "No one said that there will be an interruption in the flow of bilateral and multilateral funds to projects that are already on stream. Almost 95 per cent of the foreign funds that are to come for projects during 1998-99 have already been signed. So sanctions will not have an effect during the current year. But if it remains in place for another two to three years, then the impact would be that much greater."
He said the government has not been dependent on official flow of funds. "The strategy of the government has been that official flows will remain stagnant. India's ability to attract capital would depend on its ability to attract private capital. No country has said it will not allow flow of private capital to private company here. The US banks will not be allowed to lend to the government of India, but the government does not borrow from foreign banks. So this will not affect the finances of the government. The flow of capital therefore would depend on how the international investors view India's economic policies."
He said the Exim Bank of the US will be one important institution that will not be able to lend to Indian companies.
On the downgrading of India by Moody's by two notches, he said: "The Moody's downgradation should not be linked to sanctions. We do not agree with the ratings and we are in touch with them. They have made mistakes in the past and I sincerely hope that they have made a mistake this time." He pointed out that leading countries have been downgraded by four to six notches.
He said it would not be able to come out with a paper on how the governement plans to cope with the sanctions and the downgradation. "Many things are inherently uncertain. It would not be feasible to bring out a paper on how to counter these. We should not attribute all the uncertainties to sanctions. We must recognise that there was a major collapse in the East Asian currency and capital markets. This will affect the growth of trade and it brings about new uncertainties in the world and alters the perception of foreign investors towards emerging markets.
On developments in the forex market, Ahluwalia said that the rupee depreciated much less than the yen. "It was widely said earlier that the rupee had appreciated. So the recent adjustment in the forex market would provide a much stronger incentive to export industries and we hope for a better export performance this year," he said.
He said there was no hesitation on the part of the government on continuity of reforms. "We need more private investments not just for resources but also because it is recognised that it will lead to overall efficiency," he said.
He said the slowdown to GDP growth in 1997-98 was due to infrastructural bottlenecks and the overall turndown in the whole of Asia. He said the government is striving to address the infrastructure problem keeping in mind the macroeconomic constraint of fiscal deficit in mind.
