Whether a Congress-led UPA alliance, a BJP-headed NDA coalition or a Third Front potpourri forms the next government after the general election, a cash-strapped finance ministry is taking no chances. According to sources, the ministry is busy laying the groundwork for six PSUs to approach the equity markets for capital as soon as the new administration takes office?provided it agrees to the divestment.
The six PSUs lined up to raise funds from Dalal Street through an initial public offering are: Cochin Shipyard, Export Credit Guarantee Corporation of India, Electronics Corporation of India, Pawan Hans Helicopters, Telecommunications Consultants India Ltd and National Hydroelectric Power Corporation (whose IPO was originally slated for October 2008).
?For NHPC, where the draft red herring prospectus was already filed, we are asking Sebi to extend the validity. For the others, preparatory work such as obtaining clearances from administrative ministries, appointing merchant bankers, getting valuations and drawing up a draft red herring prospectus is under way,? a senior government official told FE.
?Since taking a PSU to the markets takes at least three to six of paperwork, we are simply keeping these companies ready. A decision on taking them public would obviously depend on the complexion of the new government,? the official said.
While the Congress has indicated that it will seek to push through minority stake sales in profitable PSUs to finance the burgeoning fiscal deficit, the BJP?s aggressive approach to disinvestment is well known. In stark contrast, Third Front convener Communist Party of India (Marxist) in its election manifesto unveiled on Monday said that it would bring a ?complete halt to disinvestment and privatisation of profit-making and potentially viable PSUs?.
But with BSP supremo and Uttar Pradesh chief minister Mayawati having embarked on an ambitious privatisation and disinvestment programme in her own state, the CPI(M) might find it increasingly difficult to hammer out a consensus within the fledgling coalition on its hardline leftist economic policies.
Ironically, the CPI (M) had helped draft the UPA?s National Common Minimum Programme that allowed navratna PSUs to tap the markets and for privatisation of loss-making PSUs. But the UPA?s divestment agenda was derailed after ally DMK opposed a 10% stake sale in Neyveli Lignite and it only ordered closure of two sick PSUs.
Incidentally, the CPI (M) manifesto also moots ?aggressive expansion? by PSUs by utilising their vast cash reserves to counter the global economic crisis. But not all PSUs are sitting on hard cash. The six PSUs that the finance ministry is preparing IPOs for need to raise capital urgently for expansion plans as they are running close to full capacity. Nor do the PSUs? nodal ministries have money to fund their capex plans.
The shipbuilding and repair facility at Cochin Shipyard, for instance, has been operating at nearly 120% capacity over the last two years. With a paid up capital of just Rs 232.4 crore, the firm has an order book of over Rs 5,500 crore.
The Centre?s fiscal deficit is estimated to be at 6% of the GDP in 2008-09, compared with the Budget estimate of 2.5%, on account of the three fiscal stimulus packages announced between December and February, the generous farm loan waiver and implementation of the Sixth Pay Commission recommendations. For 2009-10, the fiscal deficit is estimated at 5.5% of GDP.
Credit rating agency Standard & Poor?s has warned that the widening fiscal deficit needs to be contained by curbing expenditure. But with the economy slowing down, more stimulus measures would be needed and raising taxes to finance the deficit may not be an option. S&P mooted stake sales in PSUs for additional revenue within weeks of lowering its outlook on India?s debt rating to negative from stable. The downgrade was attributed to the deteriorating fiscal position, which S&P termed as ?unsustainable? in the medium term.