Volatility Tests Divestment Math

The government is likely to miss its disinvestment target once again, according to market analysts.

HYDERABAD: The government is likely to miss its disinvestment target once again, according to market analysts.

So far, of the Rs 69,500 crore target, the government has raised only Rs 3,000 crore. With just two more quarters to go and considering the volatile market conditions, concerns are raised if the target could be met.

It may be noted that the government missed the disinvestment target for more than five years in a row.

“The divestment target for this year looks hard to achieve. As we have seen in previous years, it typically picks up momentum in the last quarter. IPOs of unlisted PSUs and strategic sales would also need to happen for the target to materialise,” Pranav Haldea, MD, Prime Database told Express.

Stake sales in PSUs like ONGC and IOC are expected to rake in a five digit figure, but considering the volatile global oil market, the government has been deferring the proposal. For instance, as per the prevailing market price in February, 2015, ONGC’s proposed 5 per cent stake sale was to fetch a neat Rs 14,000 crore. Now it has come down to about Rs 11,400 crore.

Currently, 20 PSUs have Cabinet approval for divestment, of which 10 including ONGC, IOC and NMDC are expected to raise Rs 44,000 crore approximately (see table). But with disinvestment plans of ONGC, IOC and OIL taking time, the government, to meet the target, is offloading 5 per cent in Coal India Ltd to raise Rs 23,000 crore. In January, it already raised Rs 22,500 crore from Coal India stake sale. Even if this Rs 23,000 crore comes through, raising the remaining looks difficult unless ONGC and IOC divestments materialise.

“The market is buoyant and there’s an opportunity to unlock. But what’s important is, if these Navaratnas are able to get the right valuation,” said Raja Lahiri, Partner, Grant Thornton LLP.

According to Lahiri, divestment proceeds are a key source of funding for governments and will aid in public expenditure.

“If the government can mop up what it is expected, it will help reduce overseas debt burden of the country. Fiscal Deficit (FD) is coming down and any additional revenue will help it contain FD further,” he said adding, “Infrastructure like roads etc need capital and government can use this revenue to boost investments.”

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