Big boost to Government’s disinvestment plans
The Government and the markets should be happy with the encouraging response the sale of the Government's stake in Steel Authority of India limited has received. By putting five per cent of its stake in Sail on the block, the Narendra Modi-led regime had kicked off the first phase of its disinvestment plan, and its success was crucial in proceeding with the rest of it. As it has turned out, the Rs1,700 crore offer was oversubscribed more than two times; that reserved for retail investors (investing up to two lakh rupees) got subscribed by three times.
The amount the Sail issue fetches is of course small compared to the target of Rs58,425 crore that the Government has set to mop up during the current fiscal, but it is a significant contribution nevertheless. More importantly, the market response sets the stage for the more ambitious proposed sale of stakes in Coal India limited and the ONGC. The Government plans to offload 10 per cent of its share in the former while it will give up five per cent in the latter. If all goes well, disinvestment in Coal India limited alone could get the Government roughly Rs20,000 crore while ONGC will add another Rs15,000 crore. Since these two together along with the Sail amount would more than comfortably cross the half-way mark of the Government's targeted total sum, it means that the pressure on the Government will be considerably eased as fiscal year-end nears.
The month to watch out is January 2015, one month before the Budget and when the Government's disinvestment process resumes after a break for the year-end festive celebrations. It is imperative the Government meets its projections for two reasons. The first is that it will boost confidence in investors, both here and abroad, and consequently lead to accelerated growth. And the second is that the Government will be better equipped to tackle the fiscal deficit (with the help of money from these sales), which Union Minister for Finance Arun Jaitley had inherited from the previous regime and courageously decided to take head-on — although some experts had advised him to revise the estimates since the figures appeared window-dressed. Mr Jaitley had then indicated he didn't want sentiments to slump by signalling the Government was not strong enough to meet the deficit target and that it was seeking to wriggle out.
But the Government is aware that the sale of stakes in public sector companies cannot be the only panacea for the economy. It has to adopt structural reforms — something that the Union Finance Minister desisted from doing in his first Budget, probably because it was not a full-fledged Budget, and also because he wanted to first put in place mechanisms that would serve as the foundation for the expected structural changes. Now that he has had the time to undertake the exercise, and also has a team of advisors in place, the country expects big-ticket reforms to be announced in February-end 2015.