New Delhi: The Indian government is confident it will meet its target of raising Rs 40000 crore ($7.6 billion) this fiscal year by selling shares in state-run firms, a senior finance ministry official with direct knowledge of the matter said.
The government is working on a plan to raise funds by pledging stakes held in tobacco-to-hotels group ITC, industrial conglomerate Larsen & Toubro and Axis Bank, the senior official said on Tuesday.
These funds would be placed with a new investment vehicle that would buy back the government’s stake in state-run firms, said the official, who spoke on the condition of anonymity.
The shares in ITC, Larsen & Toubro and Axis Bank are held through the Specified Undertaking of the Unit Trust of India (SUUTI).
“The whole impression that SUUTI (route) will not materialize is wrong. We are still working on the modalities,” the official said.
“We are going to meet the disinvestment target.”
So far this fiscal year, New Delhi has managed to raise only about $250 million through the sale of a stake in Power Finance Corp in May.
With the stake-sale programme failing to take off and tax revenue under pressure from slowing economic growth, worries about India’s public finances are growing.
On Monday, the government announced to sell Rs 15000 crore of bonds on 30 Dec in an unscheduled auction to fund an “emerging cash requirement”.
The official said the unscheduled auction is part of the borrowing for the second half of the fiscal year that ends in March 2012, which has been advanced.
In September, the government increased its borrowing target for the second half of the fiscal year to Rs 2.2 trillion from the budgeted 1.67 trillion, but said this was unlikely to affect the fiscal deficit target of 4.6% of gross domestic product (GDP).
The financial markets are not so sure.
A Reuters poll last month showed that the fiscal deficit for the current fiscal year is widely expected to reach 5.5% of GDP, which would force the government to borrow an extra Rs 35300 crore.
“No doubt, there is pressure on the fiscal deficit front. But we are still to decide about our borrowing requirements,” the official said. “Once we work that out, we will notify it.”
Bond dealers are already fretting that the government could announce additional bond auctions, pushing up bond yields.
The benchmark federal bond yield shot up on Tuesday after Monday’s unscheduled debt sale announcement. At 04.06 pm (1036 GMT), the 10-year benchmark yield was at 8.50%, compared with Monday’s close of 8.49%, after touching a high of 8.59%.
The official sought to allay the markets concerns.
“Growth in advance tax numbers has slowed down. It is an open secret now,” the official said.
“However, there will not be a huge shortfall in revenue receipts.”