THE DISMAL STORY OF DIVESTMENT TARGET
By Ruma Dubey
The divestment target for FY16, which ends in a little more than month now is set at Rs.69,500 crore. Of this, the stake sale in PSUs was to bring in thin the lion’s share of Rs.41,000 crore. And what has been achieved till date? A meagre Rs.13,450 crore and this was through stake sale in 5 PSUs. This could explain why the Govt, in a tearing hurry, all of a sudden today announced an offer for sale in NTPC at a discounted price to the current market price. This last minute rush is most certainly not going to help. At the most, it could get in another Rs.5000 crore but otherwise, the gap between what the Govt desired and what could be achieved leaves a sense of nostalgia – all along, throughout the UPA tenure never has the divestment target been met. And we thought this was going to be a different Govt!
The Govt can blame it all on the lower commodity and crude oil prices which made it tough to sell stake in ONGC, Oil India and Coal India. But the Govt also reaped advantages of the lower prices as it managed to cut down on its import bill by doing virtually nothing.
In the current fiscal when the FM presents the Budget on 29th Feb, he is widely expected to cut down his divestment target and it is estimated to be around Rs.30,000 to 35,000 crore. Prices of commodities and crude is expected to remain weak in 2016 and that means the challenge of commodity based PSUs making an OFS seems tough.
What is even more disappointing is that despite having made the OFS of 7 PSUs in current fiscal at a discounted price, today all of them all quoted even much below the OFS price. Engineers India OFS price was at Rs.189 and today it at Rs.149. Rural Electrification’s OFS price was at Rs.315 and it I now at Rs.157, almost halved. Dredging Corp is at Rs.299 v/s OFS price of Rs.382. Investors who had made the mistake of going for the OFS are all staring hard at big losses – SAIL, Power Finance, Coal India and Indian Oil Corp. And all these OFs were made at a discounted price to begin with. In such a scenario, one cannot help but wonder if it will get the required response for other PSUs, if and when the stake sale happens. LIC had better tighten its belt as it will be continued to be called upon for a rescue.
Thus in the upcoming Budget, the FM will have to play a fine balancing act. With divestment targets cut, major source of income will be taxes – service and other. Yesterday, the State Bank of India published a report and it stated that it expected service taxes to be hiked from 14% to 16% and this in itself will help the Govt increase its receipts by 25%. SBI expects for FY17, gross tax receipts at Rs.16,93,671 crore, up 15%.
As per SBI, total receipts, including recovery of loans but without borrowings for FY17 will be at Rs 13,82, 785 crore. Total expenditure will be at Rs.19,11,207 crore. And core fiscal deficit would be Rs 5,28,422 crore or 3.5 percent of GDP.
This could be a routine Budget and one would be too optimistic to expect sops and cuts – that’s not going to happen. And yes, there is talk of a Cabinet shuffle after the Budget; so could this be Jaitley’s swan song?