Centre may announce a higher stake sale target in FY18

Seeks to max revenues to fund populist steps, Suuti stakes in Axis Bank, L&T, ITC to be sold in FY18

The upcoming 2017-18 Union Budget may announce a much higher disinvestment target, compared to the current financial year, as the Centre looks to maximise revenue opportunities to fund a number of likely populist announcements.

In the coming financial year, the focus will be on more strategic sales and initial public offerings of state-owned companies and their subsidiaries. A big chunk of the stake that the Centre holds in Axis Bank, Larsen & Toubro (L&T) and ITC through Specified Undertaking of Unit Trust of India (Suuti) may be sold next financial year, Business Standard has learnt from government sources.

Additionally, after launching two tranches of the Central Public Sector Enterprises Exchange Traded Fund (CPSE ETF), the Department of Investment and Public Asset Management (Dipam) of the finance ministry is planning to launch a second CPSE ETF next year. This is apart from the minority stake sales and buybacks by public sector units (PSUs), which will be the cornerstone of the government’s divestment plans.

The budgeted estimate for the current year is Rs 56,500 crore, of which Rs 36,000 crore is expected from minority stake sales of five to 15 per cent in listed PSUs and the rest (Rs 20,500 crore) from strategic sales in loss-making or profitable PSUs. The highest-ever target set for stake sales for any Budget was Rs 69,500 crore for 2015-16.

For the coming year, Dipam may depend on selling a major chunk in the nearly Rs 60,000 crore worth of stakes in Axis, L&T and ITC. It has already appointed a panel of six merchant bankers, from which three could be chosen to sell a particular stake. In November, some Rs 2,096 crore was garnered by selling part of the stake that Suuti holds in L&T.

There are also plans for a second CPSE ETF, for which ICICI Prudential has been appointed as the asset manager. The first CPSE ETF's second tranche of Rs 6,000 crore was opened up for anchor investors on Tuesday. It is being managed by Reliance Nippon. The quantum and constituent stocks of the second CPSE ETF are being discussed between the government and ICICI Prudential.

"We are discussing the second CPSE ETF. It will be launched likely in the coming financial year," said a senior government official in the know.

The government's ambitious programme of privatisation through strategic sales, which began this year, will be ramped up in the coming financial year, the official said. The Centre is in the process of appointing financial and legal advisors for completely divesting stake in Pawan Hans, National Projects Construction Corp, Hindustan Prefab, Projects & Development India, and others.

It remains to be seen how many will be sold this year and what all will be carried over to the next year. The sense in the finance ministry is that Dipam is under no pressure to meet the budgeted divestment targets for the year. Prime Minister Narendra Modi's demonetisation drive has ensured that tax will be paid on a substantial chunk of hitherto undeclared income.

So far, out of Rs 56,500 crore, nearly Rs 30,000 crore is already accounted for, including the second tranche of CPSE ETF. Even if nothing else is sold, that will still be the highest actual disinvestment process for any year.