Government struggles in meeting divestment target of Rs 58,425 crore

The government is clearly caught between a rock and a hard place regarding the disinvestment target in the 2014-15 Union Budget.

With only two months left in this financial year, the government is still struggling to launch sale of shares in public sector units (PSUs) as it has managed to raise only a small fraction of the ambitious target of Rs 58,425 crore.

According to sources, the government has now decided to bring in smaller PSUs like Dredging Corporation and STC also into the picture and put them under the charge of a separate joint secretary in an attempt to expedite the process.

The move to disinvest larger companies like Oil and Natural Gas Corporation (ONGC) and Coal India (CIL) to raise a neat Rs 39,000 crore in one-go has had to be shelved because the sharp decline in the international prices of crude oil and coal has led to a fall in their share price and the government cannot afford to sell them at such cheap prices.

This has forced the government to widen the basket of companies that it wants to disinvest.

On Friday, the government indicated that it is moving ahead with disinvestment of Power Finance Corporation and Dredging Corporation of India.

However, a senior official told MAIL TODAY on condition of anonymity that "disinvestment is in the slow lane as of now as even the beauty parade for these companies has not yet started".

"The government cannot not suddenly rush with sale of shares across PSUs like Indian Oil as it would led to a slump in their share price and amount to a distress sale", the official added.

A finance ministry official said that shares will be offloaded in manner so that the government realises the best price and even if "we do not meet the disinvestment target during this fiscal, heavens will not fall". "In fact, the disinvestment target has never been realised in the last five years for these very reasons," the ministry official added.

The government has so far managed to raise only Rs 1,715 crore through the disinvestment of five-per cent stake in Steel Authority of India Limited (SAIL), wherein it had to depend on Life Insurance Corporation (LIC) to buy a major chunk of shares to make the issue a success.

According to Kishore Oswal, chairman and managing director of CNI Research, LIC came to the rescue in previous years as well but this does not amount to a genuine disinvestment of shares.

He is of the view that foreign institutional investors deliberately hold back when PSU shares are offloaded to buy them later from the secondary market when they turn cheaper.

"This happened in the case of the previous ONGC disinvestment. There was no reason why these shares should not have been bought given the strong fundamentals of the company."

Experts say that disinvestment cannot be bunched up towards FY15-end as the market has only a limited appetite and an excessive number of shares floating around is bound to lead to a crash.

In association with Mail Today Bureau