The government?s effort to end policy paralysis through serial reforms does not seem to have struck a chord with various stakeholders. After facing the wrath of Opposition and allies on allowing foreign direct investment in multi-brand retail, the government has met stiff resistance on its proposal to permit cash-rich public sector enterprises to buy back their shares from the government so that exchequer gets some non-tax revenue and fiscal stress is reduced.

The power ministry, which controls cash-rich maharatna and navratnas like NTPC, NHPC, Power Grid, PFC, REC and SJVNL has stoutly opposed the proposal, stating it is an imprudent move that would jeopardise the country?s efforts to bridge the power deficit. Ministries of steel, heavy industries and coal too have indicated their disinclination towards the scheme, official sources told FE.

Major power sector PSUs have combined cash and bank deposits of over R32,000 crore while steel and coal companies have reserves over R42,000 crore as of March 31. Bhel has about R10,000 crore in cash while Coal India has over R50,000 crore.

Left with few avenues to boost revenues and rein in the runaway fiscal deficit, the finance ministry last week floated a Cabinet proposal that would empower the disinvestment department to formulate a policy for buyback of shares by cash-rich PSUs. This is considered important to help the government meet the R40,000 crore disinvestment target. Volatile market conditions have killed the public offer plans of PSUs like ONGC, SAIL and Bhel, putting a question mark on whether the government can reach anywhere near the budgeted disinvestment target.

?We oppose any move which permits power sector PSUs to buy back shares of the government as it would serious hamper their expansion plans. Our views have been communicated to the finance ministry,? said a power ministry official asking not to be named.

?The finance ministry should consider setting up a separate fund if the disinvestment programme has to be carried through innovative means,? the official said. The power ministry has also suggested that power sector shares are trading at a discount, lowering the valuation of companies and poor realisation for the government.

Two senior officials from NTPC and REC confirmed that the PSUs have supported the stance of their administrative ministry. ?If our cash is used for buying shares rather than making investments in power plants, we will surely have no projects for commissioning in the 12th Five Year Plan,? said an NTPC official. The company plans to invest close to R1.5 lakh crore over five years.

?We were asked to provide funding requirements for projects to be undertaken over one year. We have given our assessment and told the power ministry that providing cash for buying back shares at this juncture is not a viable option,? said an REC official.

With eight months of the fiscal already over, the government has raised only Rs 1,145 crore out of the Rs 40,000 crore targeted for the fiscal. The government has approval for disinvestment of ONGC, Bhel, NBCC, SAIL, Hindustan Aeronautics and Hindustan Copper. But market conditions have put all issues on hold.

The current fiscal was marked by duty cuts on petroleum products, higher subsidy burden, lower tax receipts and increased borrowing, factors that could combine to make it hard to keep the fiscal deficit target in a slowing economy. Disinvestment in this scenario is an important tool to shore up its revenues.