Disinvestment issue on Cabinet table today

A day after market regulator Securities and Exchange Board of India (Sebi) facilitated disinvestment of public sector units amid adverse market conditions, the Union Cabinet is likely to deliberate on various options available to the government on its stake sale in these companies tomorrow.

The Cabinet agenda assumes importance as the government is struggling hard to mop up targeted amount of Rs 40,000 crore through disinvestment this financial year in adverse market conditions.

The issue is also significant as the government is finding it hard to raise resources to bridge fiscal deficit, which in the first eight months has already crossed 85 per cent of the Budget target for 2011-12.

Today, the market regulator permitted promoters holding over 75 per cent equity to use institutional placement and the exchange window to increase public holding to the mandated 25 per cent. The government is weighing options on disinvestment — such as asking PSU banks and insurance companies to buy its stakes in various companies through the bulk sale.

The government could mop up little over Rs 1,100 crore out of the target of Rs 40,000 crore this fiscal so far through the disinvestment in only one company — Power Finance Corporation.

The disinvestment plan of other companies — Oil and Natural Gas Corporation, Steel Authority of India, Bharat Heavy Electricals Ltd and National Buildings Construction Corporation Ltd — has been frozen due to market conditions.

If the Cabinet approves the disinvestment plan, prepared by the Department of Disinvestment, PSU banks and LIC could send their proposals to buy stakes in public sector units, which may go beyond this pending list.

In fact, the new company likely to be created by the dissolution of the Specified Undertaking of UTI (Suuti) will also be able to utilise this option.

The government expects to garner more amount by this way as public offers are not expected to yield much revenues .

Also, cash-rich companies are being eyed to go for buy back of shares. This may be undertaken as part of PSUs’ strategic capital restructuring. Under this mode, the companies will offer to the government and other shareholders an option to surrender shares.

The surrendered shares will then be extinguished. However, cross-holding proposal mooted earlier could be dropped.

Government’s fiscal deficit has already touched 6.7 per cent of GDP in the first half of this financial year. It is now acknowledged that the deficit cannot be pruned to 4.6 per cent of the gross domestic product as was targeted in the Budget as the government faces drop in tax collections and its expenditure rises. Tax receipts in the first eight months of the year are only about 52 per cent of the Budget Estimate. On expenditure side, the government’s subsidy bill on petroleum, food and fertiliser is likely to go up by Rs 1 lakh crore over the earmarked amount of Rs 1.34 lakh crore.

The government has already decided to go for around Rs 93,000 crore of extra market borrowings over the budget estimates of Rs 4.17 lakh crore, clearly indicating the dwindling finances of the exchequer.