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According to a senior government source, the privatization target could reach INR 700 billion, almost equal to all proceeds over the last four years, in a Budget Prime Minister Modi hopes will launch the growth and jobs agenda that won him two months ago India’s biggest election mandate in three decades.
"The finance ministry has approached different ministries to increase the divestment target," said the senior official with direct knowledge of the Budget process. The previous government had pencilled in sell-off proceeds of INR 569 billion.
The 63-year-old premier has made a decisive start by naming a streamlined cabinet, approving a slew of infrastructure projects and embarking on what promises to be a whirlwind first year of trade diplomacy.But his government has been plagued too by the economic ills that brought down its predecessor: weak growth and high inflation caused by spending too much and investing too little.
Despite the market reforms of 1991 that brought down the curtain on decades of socialist isolation, tracts of Asia’s third-largest economy remain off limits to outside investors.
Modi wants to open up industries like defence, but selling controlling stakes in bloated state enterprises is out of the question.
Instead, he will whittle down state stakes in firms that have already been partly sold, like Steel Authority of India Ltd, without surrendering overall control, said the official and other sources familiar with the plans.
Stocks have enjoyed a Modi boom, rallying 23 per cent this year. Listed state firms have outperformed on hopes that wider ownership would discipline managers and that their bottom line would benefit from a loosening of price controls.
Leading the pack is Indian Oil, which has gained 62 per cent in 2014. ONGC, another oil firm, is up 46 per cent. Coal India has risen 36 per cent.
"It is the right time to sell stakes in public sector companies as the stock market is booming," said the official, who requested anonymity as the Budget process is confidential.
Jaitley plans to front-load share sales, with a five per cent stake in Steel Authority of India, worth $340 million, on the docket for late July, say sources familiar with the deal.
That is likely to be
A senior oil ministry official said some of the leading oil companies were contenders for the share-sale programme, but did not name any names. A final decision would be taken by the finance ministry.
Deutsche Bank Securities forecasts proceeds of 600-800 billion rupees from asset sales in this fiscal year. That would enable the government to avoid borrowing more even if it raises its deficit target to 4.3-4.4 per cent of GDP.
Finance Minister Arun Jaitley is expected to roll out other revenue measures in addition to the asset sales, including a general sales tax that will unite all the 29 states in the country into a common market.
The measure would make it easier to do business and, over time, broaden the tiny tax base, which last year was a mere 8.9 per cent of India’s $1.9 trillion gross domestic product - about a quarter of the average for the OECD club of developed nations.
Some of the ‘bitter medicine’ that Modi has warned people to expect would come, the senior government official said, in the form of reductions to subsidies on fuel, fertiliser and food that cost 2.3 per cent of GDP.
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