India may tap cash-rich PSUs to plug disinvestment shortfall

Staring at a massive shortfall in its disinvestment target for the year, the government could ask cash-rich state-run firms to pick up stakes in other public sector companies. This is aimed at bridging a deficit of more than Rs 50,000 crore (around $8 billion) in the government’s disinvestment target set for the current fiscal year.

Nine months into the year, the government has managed to raise only Rs 12,700 crore. Any hopes of meeting the budgeted target are increasingly slim because of poor appetite for commodity stocks that the government has to sell in the backdrop of a global downturn in the sector.

As the present market conditions are looking grim to divest stake in PSUs, it has forced the government to delay the stake sale. The government has been able to sell stake in just four PSUs which include Indian Oil, Rural Electrification Corporation (REC), Power Finance Corporation (PFC) and Dredging Corp, raising a total of Rs 12,700 crore.

With the pressure growing on the government to maintain the fiscal deficit target, officials are looking at “cross-holdings and share buybacks” to compensate the shortfall in disinvestment proceeds. This will enable the cash-rich firms to use their surplus holdings in buying stakes put up by the government and also enable the finance ministry to achieve its targets. Some analysts, however, say that asking PSUs to allocate funds to buy shares in each other is likely to impact their capital expansion plans.

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