Despite budgeting for a mop-up of Rs 20,500 crore from PSU privatisation, the Centre may almost draw a blank on these “strategic sales” in FY17, but would still meet the fiscal deficit target of 3.5% of the gross domestic product without a big deceleration in spending.
Although the Cabinet recently set in motion the strategic sale process by putting Allahabad-based PSU Bharat Pumps and Compressors (BPC) on the block, it’s doubtful if majority stake sale even in this small company could be concluded in the current year after completion of all processes, let alone sale of any other firm. Such transactions, an official said on condition of anonymity, would take 6-8 months to materialise, through a process involving valuation, approvals at various stages and finally getting the investors on board. Sale of loss-making PSUs too would entail a similarly long process. So, the focus in the current year would be directed to buyback of stakes by PSUs and sale of minority stakes in some large PSUs including ONGC, BHEL and NMDC, through the offer for sale route.
Also, tax revenue buoyancy – particularly with regard to indirect taxes which grew 26% in the first half against 19% estimated for the full year- is expected to come in handy for the government, which wants to adhere to the budgeted spending numbers to pep up aggregate dem and in the economy, when private investments continue to stagnate.
Official sources told FE that the Union government’s total expenditure in the first six months of this year had crossed 50% of the budgeted amount of Rs 19.78 lakh crore, constricting the space for any big spending squeeze in the second half of the year. While last year the Centre almost stuck to the spending target, it had to cut expenditure by Rs 1.3 lakh crore in FY15 and close to Rs 1 lakh crore each in the previous two years to meet deficit targets.
Additional tax revenue of around Rs 15,000 crore estimated to flow in under the Income Declaration Scheme (IDS) will give a cushion. The shortfall of Rs 32,000 crore in spectrum auction revenue this year could be somewhat offset by a combination of IDS tax proceeds, overall tax buoyancy and disinvestment.
The tested option of buyback could be the white knight when it comes to disinvestment this year. This route alone has the potential to bridge the likely shortfall in strategic sale proceeds, the sources said. The Centre has already raised Rs 2,832 crore from buyback of shares by Nalco earlier this month while four other PSUs – Coal India, MOIL, NMDC and Bharat Electronics – are currently executing such transactions that could fetch another Rs 14,200 crore in a couple of months. More revenue is likely to be generated via this route before the end of the fiscal. Other PSUs likely to buy back shares include NHPC, REC, Oil India, Neyveli Lignite, SJVN, Indian Renewable Energy Development Agency, South Eastern Coalfields, Shipping Corporation, Northern Coalfields, Central Coalfields, Mahanadi Coalfields, Western Coalfields, BPCL, Engineers India and Mazagon Dock.
The Budget estimate for disinvestment comprises Rs 36,000 crore from sale of minority stakes in PSUs and Rs 20,500 crore from strategic disinvestment. The Centre has raised Rs 6,414 crore in this fiscal via disinvestment.
NITI Aayog has identifed 44 companies for strategic disinvestment and 26 loss-making PSUs for closure. Though the government might act on this plan in the current fiscal, the results will take longer. FY18 could throw in some good numbers for the budget makers from strategic disinvestment and sale of loss-making PSUs, the sources said, adding these routes were very important given the obligation cast on the Centre to compensate states for any revenue losses in the Goods and Services Tax (GST) regime.