India Divestment Czar Sees New Ways to Free Cash at State Firms

  • New department to look beyond stake sales in state companies
  • Modi needs revenue to help meet budget deficit target

Prime Minister Narendra Modi’s policy shake up offers unprecedented flexibility to use idle cash at state companies and help meet India’s record asset sale target, said the man responsible to achieve the goal.

Neeraj Kumar Gupta’s department, which would earlier concentrate only on asset sales, will now consider several other options to raise revenue, he said in an interview in New Delhi on Thursday. These include capital restructuring, bonus and dividend payouts, and reinvestments as part of a new umbrella policy for public asset management.

"The process will involve multiple actors," Gupta said. "So coordinating with each of them and keeping them aligned to a timeline is the biggest challenge."

Modi needs all the help he can to narrow Asia’s widest fiscal deficit without cutting stimulus spending that’s sustaining one of the world’s fastest growth rates. Failure to meet budget targets risks stoking inflation, boosting borrowing costs and imperiling the nation’s credit ratings.

Modi’s looking to narrow the deficit to 3.5 percent of gross domestic product in the year starting April 1 mainly by boosting tax revenues by 12 percent. Some analysts such as Dhananjay Sinha at Emkay Global Financial Services Ltd. are already calling this optimistic, as the benefit from lower oil prices -- which allowed him to painlessly raise tariffs on gasoline -- fades away.

So the 565 billion rupees he’s targeting from sales of stakes in state companies becomes even more crucial. This includes 205 billion rupees from sales of majority stakes, even though previous attempts have been hindered by labor union protests and volatile financial markets.

About 360 billion rupees is being sought from the sale of minority stakes in companies such as Coal India Ltd. and Oil & Natural Gas Corp., which seems ambitious considering India’s highest ever annual collection since 1992 has been 243 billion rupees. That happened in a year when the benchmark stock index rallied 25 percent; equities have plunged 17 percent over the past 12 months.

"Market volatility definitely offers a challenge but we will make our best endeavor to meet the target," Gupta said. "The government is not selling under pressure."

‘All Options’

Learning from experience, India is considering various options, including buybacks, private placements and giving up management control in some state companies. Modi’s policy advisory body NITI Aayog, headed by former Asian Development Bank chief economist Arvind Panagariya, will identify the companies for strategic sale.

"We have to leverage the assets of central public sector enterprises for generation of resources for investment in new projects," Finance Minister Arun Jaitley said in the budget speech on Feb. 29. These include sale of land and factories, he said.

Gupta, who added 58 billion rupees to the government’s stake sale kitty within two months of taking charge in January, said regulators and company law allow various instruments for divestment.

"We will use all possible options most transparently and most efficiently," he said.

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