Sweet fruits of Disinvestments - Road-map To Successful Planning

Sweet fruits of Disinvestments – Road-map To Successful Planning

Sep 16, 2014 Tushita Economy 0

Since the Union Cabinet has cleared the sale of government stake in Oil and Natural Gas Corporation (ONGC), National Hydroelectric Power Corporation (NHPC) and Coal India Ltd. (CIL), it can be safely deduced that the disinvestment programme for 2014-15 has taken off in high spirits.

The selling of 5% stake in ONGC, 11.36% in NHPC and 10% in CIL is expected to generate Rs.45,000 crore as per their current market prices. Going by the government’s budgeted plan of disinvestment, Rs.43,425 crore were budgeted for the current fiscal along with Rs.15,000 crore more from the sale of residual stake in companies like Bharat Aluminium and Hindustan Zinc, which are already privatised.

Immediate Impact:

The successful carrying out of the approved stake plan will now prove highly beneficial for Finance Minister Arun Jaitley as it will help him meet his target of maintaining 4.1 per cent fiscal deficit for the current year.

The presently buoyant markets, favourably high S&P BSE Sensex and active buying of stocks by foreign institutional investors are the factors that make positive predictions in favour of the government. Also, owing to the proposal for increasing retail quota in the offer for sale from the current 10% to 20% there is now immense scope for greater retail participation. This would be further enhanced if the government offers liberalities and concessions to retail investors in the offer price.

History of a few disinvestment programs:

Disinvestment programs came into operation in early 1990s and since then it has been only thrice that they have managed to meet the budgeted targets. 2012-2013 can be regarded as the best memory of such an occurrence when the government successfully gathered Rs.23,957 crore from the sales of the stakes.

Therefore, this so far would be the best ever disinvestment programme, barring a couple of bridges that the government will have to inevitably cross when they will come along the way.

There is a huge unrest at CIL’s employees’ union, Due to relentless exasperation over what they term as “privatisation” of the company, in which the government currently has 89.65% ownership. With unions threatening strikes on boards, the situation is bound to get tricky. It will certainly topple the value of CIL and consequently depose the proceeds from the stake sale

The choice of NHPC, which hasn’t been performing very well from a long time is also quite interesting. As enunciated by the company itself because of being hit by dues pending from some state utilities and delays in project execution, the company is seemingly moving towards incurring heavy losses this fiscal year. Therefore the resultant price of the share might not be particularly ideal for the government.

As far as ONGC is concerned, transparency and clarity on the pricing policy for gas on account of the government will definitely attract investors as it will offer them a better perspective to evaluate the company. Of course the globally falling oil prices will ease the burden of subsidies and enhance profitability for ONGC

With the Cabinet clearance in hand, the disinvestment department should now actively work towards completing the sale process and take utmost advantage of the presently positive market atmosphere.

Coal India, Disinvestment, economy news, Fiscal Deficit, Indian Economy, NHPC, ONGC, Share Sales

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Tushita

Tushita is a political writer at thenational.net. Her deep rooted interest in politics, passion for writing and craze for travelling define her. Writing since her school days, she aspires to write lifelong and make the world a happier place to live with the power of her pen.