Timing Holds the Key to Hit Annual Target
CHENNAI: The government’s disinvestment programme doesn’t have a pricing problem — it just seems to be ill-timed.
The recent stake sale in Indian Oil Corporation (IOC) is a case in point. Though initial estimates pegged the stake sale to fetch Rs 10,300 crore, the government managed to mop up only Rs 9,300 crore, thanks to state-run LIC that came to its rescue. IOC’s divestment happened both when the oil prices were tumbling in the global market and also on a day when the global meltdown wiped out 6 per cent from the benchmark Sensex in a single day.
Wednesday’s Cabinet approvals to offload 10 per cent each in Coal India Ltd and Cochin Shipyard Ltd is a welcome move, but analysts say success depends on the timing.
“The Cabinet's approvals (to divest) will surely help the government get closer to its disinvestment target. However, it remains to be seen as to when the offers finally hit the market,” said Pranav Haldea, MD, Prime Database. For instance, in the case of companies like Coal India, it also depends on commodity prices, environmental issues etc.
Divestment proceeds are crucial as they fund government programmes, aid public expenditure and help reduce fiscal deficit.
“It’s a good start, but a lot depends on the quality of the asset and if these Navaratnas will be able to get the right valuation,” Raja Lahiri, Partner, Grant Thornton LLP told Express adding, “There should more activity. Currently, implementation is slow as for divestment plans go. But today’s move will likely accelerate the process.”
Of the Rs 69,500 crore target, only Rs 12,600 crore, or roughly, one-fifth of the annual target, has been raised via stake sale in four bluechip PSUs since April. Amid volatile markets, concerns are raised if the target could be met.
The government had missed the disinvestment target for over five years in a row. Currently, 20 PSUs have Cabinet approval for divestment, including ONGC, IOC and NMDC that are expected to raise Rs 44,000 crore approximately (see graphic).