The Indian government’s ambitious target of raising 1.05 trillion rupees (US$ 14.63 billion) through selling of stake in state-owned enterprises is unlikely to be met in this fiscal year.
The government may not complete the strategic sale of its Bharat Petroleum Corporation, Container Corporation of India and Air India by March-end, said a senior government official, Business Standard reports.
“The government has to respond to what the potential bidders ask for. Sometimes, they seek time to examine financial statements. Sometimes, they want to do physical due diligence,” said the official.
The government has so far in FY20 managed to raise 173 billion rupees ($2.41 billion) through disinvestment; 84% of its disinvestment target is yet to be realised.
Among the companies lined up for divestment the government wants to divest its entire stake of 53.3% of oil refiner Bharat Petroleum Corporation Limited. Market estimates say it will fetch at least 563 billion rupees. Oil minister Dharmendra Pradhan has said international energy firms will be invited to participate in the stake sale.
The government also plans to sell its 64% stake in Shipping Corporation of India (valued at around 17.7 billion rupees). The government wants to bring down its holding in the logistics firm Container Corp of India from the current 55% by selling a 31% stake to a strategic investor, which can bring 107.34 billion rupees.
The government wants to sell the entire 100% stake in Air India and if this sale is also added to the equation, then the proceeds may jump to over 800 billion rupees.
But the state-owned airline has a debt burden of over 300 billion rupees. In 2018-19, the company incurred a net loss of 85.56 billion rupees (provisional estimate).
The government in 2018 tried to sell a 76% stake in the airline but there were no takers. Many investors were not comfortable with the government’s retaining a 24% stake in the airline. This time it is also offering to restructure debt and liabilities and allow the new owner to offer voluntary retirement to employees.
The likely delay in divestment comes at a time when the government’s fiscal deficit has touched 115% of the FY20 Budget estimate by November. The failure to meet disinvestment targets will widen the fiscal deficit. Economists say that while the deficit could be around 3.5 to 3.8% if disinvestment targets are met, the inability to meet them could widen the deficit to above 4%.
In addition, revenue from taxes is also faltering and likely to fall short of the target. The government may miss the tax target of 24.6 trillion rupees ($342 billion) by at least 2 trillion rupees ($27.87 billion) on account of the cut in corporate taxes, lackluster goods and services tax collections, and the economic slowdown. As much as 42% of the revenue collections (excluding cess and surcharge) will go to states.
The government in September announced steep cut in corporate taxes to provide relief to industrialists and entrepreneurs. This relief is expected to cost the exchequer 1.15 trillion rupees ($16 billion).
A monthly target of 1 trillion rupees was set for goods and services tax, but in this fiscal year, so far, it has been met only five times. The government has revised it to 1.1 trillion rupees from December to March to rein in the runaway fiscal deficit. Fortunately tax collection crossed the 1 trillion rupees threshhold consecutively in November and December.
The federal government is also constantly at loggerheads with state governments over delay in payout of goods and services tax. Recently there was a confrontation between the federal government and the states as tax payout had been pending since August.
India’s gross domestic product was at a six-and-a-half-year low in Q2 FY20, at 4.5% on a year-on-year basis. Although public spending has risen marginally, private sector consumption has fallen.