Air India, BPCL, Concor privatization unlikely to be completed by March
The likely shortfall comes in a year where tax collections have been below par amid an economic slump
The government is unlikely to complete the privatization of Air India Ltd, Bharat Petroleum Corp. Ltd (BPCL) and Container Corp. of India Ltd (Concor) by end-March, leaving a ₹40,000-50,000 crore hole in its budget.
This is likely to further impair the government’s ability to meet the fiscal deficit target of 3.3% of gross domestic product (GDP), in a year where both direct and indirect tax collections have been well below expectations amid an economic downturn that has hit a six-and-half-year low of 4.5% in September quarter.
“There is a lot of interest in the market among investors for the companies on offer. The transaction may also be completed successfully, but now it looks difficult that the money will reach the coffers before 31 March. That is a challenge," a finance ministry official said on condition of anonymity.
While four-five weeks may be sufficient for responding to the Expression of Interest documents which are under works, the prospective bidders may seek more time for due diligence, the official said. “If it triggers an open offer for minority shareholders as per Sebi (Securities and Exchange Board of India) guidelines in the listed companies such as BPCL and Concor, again it will delay the process by another five to six weeks. Then the successful bidder will have to get clearance from Competition Commission of India, only after which it will transfer the money to government’s account," he added.
The government may still go ahead and show the expected disinvestment proceeds in the revised estimate of 2019-20 “to maintain the books", the official said.
The International Monetary Fund on Tuesday urged the Indian government to improve its budgeting and enhance transparency in fiscal reporting.
“For example, a more accurate picture of the fiscal stance would better inform decisions regarding how much stimulus should be provided in a cyclical downturn. The government could increase its credibility vis-à-vis financial markets and enjoy more favourable borrowing conditions as a result. And greater fiscal transparency would also boost the ability of investors and citizens to make informed and efficient financial and economic decisions," the IMF said in its Article IV consultation report.
The cabinet on 20 November cleared the proposals for strategic disinvestments guided by the basic economic principle that the government should discontinue its engagement in manufacturing of goods and services in sectors where the competitive markets have come of age, and such entities would most likely perform better in private hands.
While the government plans to privatize Air India by selling its 100% ownership, it will divest its entire 53.29% stake in BPCL and 30.8% stake in Concor out of its current 54.8% stake.
It has set an ambitious disinvestment target of ₹1.05 trillion for FY20, of which it has managed to garner only ₹17,364 crore so far.
The government’s decision to slash corporate taxes to boost the economy and attract investments has left finance minister Nirmala Sitharaman struggling to meet the year’s fiscal deficit target despite receiving a ₹1.76 trillion windfall from Reserve Bank of India.
IMF has estimated that India may miss the fiscal deficit target by at least 50 basis points.