Cabinet clearance for disinvestment aiming to raise funds through buyback of shares and banks picking stake in public sector units is unlikely to go through. While the disinvestment department has failed to provide any list of PSUs willing to go for buybacks, the government after the last tranche of additional borrowing of R40,000 crore has also managed to get its budget arithmetic right.
PSUs and banks are equally opposed to the buyback option. The finance ministry has, therefore, somewhat reconciled to the idea that the disinvestment target will not be met, an official added. The Cabinet Committee on Economic Affairs (CCEA) on Wednesday did not take any decision on the proposal and sources said it was unlikely to come through in this fiscal. Banks are leery about the proposal: According to a senior banker who wished not to be named ?banks will not be interested in investing in these shares are they are trading at much lower levels than their listing price.? Moreover, exposure restrictions on banks will make it difficult to buy stakes in PSUs.
Sources said finance minister Pranab Mukherjee’s serial meetings over the past few weeks have not led to any concrete plan on disinvestment. On the basis of latest tax numbers, total revenue collection is estimated to be R 9 lakh crore in this fiscal, R32,000 crore below the Budget estimate.
The shortage has happened due to growth slowdown which has impacted both direct and indirect tax receipts.
On the expenditure front, the finance ministry expects a slippage of over R90,000 crore from its Budget estimate of R12.58 lakh crore. This is because of the higher oil subsidy of R47,000 crore and another R46,000 crore for fertilisers. Food subsidy will more or less remain at par.
The two tranches of additional borrowing at R52,800 crore and R40,000 crore will just about cover this gap, but will need very tight guarding of the fisc by the finance ministry against any further slippage. As per the new calculations, fiscal deficit will be at least one percentage point more than the budgeted level of 4.6% of GDP.
Capital market volatility has forced the government to repeatedly postpone the public issues of PSUs. The department of disinvestment had early last month circulated a Cabinet note for considering a buyback mode, under which it could raise money by selling equity held by government in the company to the PSU itself. About a dozen cash-rich companies like Coal India, SAIL, NMDC, ONGC and NTPC are on the government?s radar.
PSUs are averse to buybacks as it will impact their investment plans. Amid global uncertainties, companies are finding it difficult to raise resources from the market for capital expenditure.
Oil and gas companies also have the requirement of huge capital for exploration, production and infrastructure. It is estimated that government-owned companies are sitting on a cash reserve of about Rs 2.50 lakh crore.
As per Section 19(2) of the Banking Regulation Act, 1949, no banking company shall hold shares in any company, whether as pledgee, mortgagee or absolute owner, of an amount exceeding 30% of the paid-up share capital of that company or 30% of its own paid-up share capital and reserves, whichever is less.
Above this, the aggregate exposure of a bank to the capital markets in all forms (both fund based and non-fund based) should not exceed 40% of its net worth, as per the RBI norms.