Assets sale may ease fiscal concerns

Indian Prime Minister Manmohan Singh, who began his second term this week, may set a record for selling state assets as he revives efforts that were foiled by his former communist allies, bankers and analysts said.

The new administration could start by resuming share sale plans for NHPC, India's largest producer of electricity from water, explorer Oil India and fuel retailer Hindustan Petroleum Corp, according to Mumbai-based brokerage Religare Capital Markets.

Singh may sell $20 billion of state assets in the next five years as he tries to plug a budget shortfall, said Rashesh Shah, chief executive officer of Edelweiss Capital. After a privatisation wave that netted a record $6 billion between 1999 and 2004 to a government led by Singh's main opponents, sales slumped during his first term as communist allies thwarted plans.

“Sales by this government will be significantly higher than the previous record,” S Subramanian, head of investment banking at Enam Financial Consultants in Mumbai, said. Mumbai-based Enam has managed share offerings for state-owned companies including Power Grid Corp. of India, CMC. and Power Finance Corp.

Singh's Congress party-led coalition faces a fiscal deficit that's more than double the government target and an economy growing at the slowest pace since 2003. The nation will sell stakes in companies as promised by the Congress party's election manifesto, P. Chidambaram, who was in charge of the finance and home ministries in Singh's previous administration, said on May 18. Singh, the first premier to win re-election after serving a full term since 1971, doesn't need the Communists' support for his new administration after winning the backing of 322 lawmakers in the 545-seat lower house.

'Right to own'
“The Indian people have every right to own part of the shares of public sector companies while the government retains majority shareholding,” the election manifesto said.

Still, Congress “rejects the policy of blind privatisation” followed by the opposition Bharatiya Janata Party and its allies, it said. Singh, 76, raised Rs 6,700 billion from selling stakes in NTPC and Rural Electrification Corp. of India during his first term, according to India's Department of Disinvestment.

Then finance minister Chidambaram's plans to sell shares in companies including Bharat Heavy Electricals, India's biggest maker of power equipment, and National Aluminium Co. were blocked by the communists in 2006.

Strained finances
India's fiscal deficit reached 6 percent of gross domestic product in the year ended March 31, surpassing the 2.5 percent government target.

The prospect of a wider budget shortfall prompted Standard & Poor's to say in February that India's spending plans were “not sustainable” and the nation's credit rating may be cut to junk if finances worsen.

“The government will now have the ability to look at disinvestment seriously in the context of the fiscal deficit,” S Ramesh, chief operating officer of Kotak Mahindra Bank's investment banking unit, said in an interview.

“The numbers can be significant.” Raising Rs 10,000 crore rupees from share sales and initial public offerings in the financial year that began April 1 would help cut the fiscal deficit by a quarter-point, according to Religare estimates.

The author is a Bloomberg News columnist. The opinions expressed are his own