The disinvestment game

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: The general elections in the month of May and the subsequent rise in the equity markets have built up a lot of optimism in the system and there are serious talks of the initial public offer market reviving.

In this, the government seriously taking on the disinvestment route to ease fiscal pressures looks to be a ‘certain’ possibility. Fiscal sops and stimuli offered before the elections to provide impetus to a visibly slowing economy have also taken their toll on the government’s books. The fiscal deficit is now estimated at 6% of the GDP for the financial year 2008-09 as against the projection of 2.5%. And this can wreak havoc on a slowing economy, as interest rates could rise, the government could levy more taxes, and also it could stoke, the now dormant, inflation, as more money gets printed.

Hence, the government would definitely have to rework its disinvestment strategy and go in for an even stronger execution. And this time around, with the strong mandate that the Congress has, chances of this going through smoothly have increased dramatically.

And it is not the first time that a government would have to resort to selling its wares. It was under the NDA regime in 1998 and 2004 that the government mobilised around Rs 33,700 crore. This was before the Left parties threw a spanner in the works and derailed the process. Analysts reckon that during the 1998–2004 period, the government garnered, on an average, a sum of Rs 5,600 crore a year.

And, this move helped reduce the fiscal deficit from 6.5% of the GDP in 1998–99 to 4.5% in 2003–04. “Going by our back-of-the-envelope calculations, if the new government manages to mobilise around Rs 10,000 through lined up public offers and strategic sales in FY10, it can lower fiscal deficit by around 25 basis points,” says an analyst at Religare Hichens Harrisons.

And the government’s predicament could well be an opportunity for the investing community, as several ‘gems’ could be available for investment. “The government’s offerings, as compared with private sector public offerings, are not that aggressive and investors stand to gain from these,” says Hiten Ganatra, a Mumbai-based investment advisor.