Disinvestment by Indian Government

The new Indian Government has proposed a Disinvestment plan in the Budget 2009-10. According to this Disinvestment plan, The Indian Government will divest its stake in many Central & State Government owned Businesses.

Yes, This is true….

The Government of India is selling its holdings in the companies promoted by it. These companies, known as public sector companies, were promoted by the government for economic development and social justice. Theoretically, the intentions of setting up these companies were good. In practice most of these companies became a drag on the exchequer.

According to the sources, If Indian Government dilute 50% stake in all of these State owned Companies than it can totally remove its Total Fiscal Deficit of around Rs.3.5 Lakh Crores.

During the last three years total disinvestment has been Rs 1000 crore against the target of Rs 16,800 crore (Rs 100 crore = Rs 1 billion). Disinvestment needs both political will and technical expertise.

A faster disinvestment programme now will serve two purposes: One, it will give a revenue boost to the government which has set a Rs 5,000 crore (Rs 100 crore = Rs 1 billion) target this year. Two, it will send a positive signal to the international investing community which is even now waiting for the Indian system to remove procedural roadblocks in the way of foreign investment.

Currently many Government Companies are listed publically such as BHEL, NTPC…etc… But Government of India is planning to divest its stake in major companies like BSNL & IOC (Indian Oil Corporation).

Pending issuances include those by state owned enterprises like National Hydroelectric Power Corporation (NHPC) and OIL India, a Mumbai-based lawyer said.

State-owned engineering conglomerate, HMT and NHPC could be divestment candidates, said a private equity source. An earlier report filed in September 2008 by this newswire said that HMT could consider a strategic stake sale.

A report by French securities firm CLSA identified that the Government of India’s holding in listed state-owned companies alone is worth USD 176bn. A reduction in shareholding to hypothetically 51% across all the state-owned entities could bring in USD 62bn at current market prices, the report stated. ”We believe the government will, however, test the waters with small stake sales. A 10% stake sale in the ten large public state undertakings (PSU) that are likely disinvestment candidates can bring in USD 17bn,” the firm estimated in its report over the weekend.

At present the following Companies are Listed which are promoted by Indian Government -

01) BHEL (Bharat Heavy Electricals Limited)
02) NTPC (National Thermal Power Corporation)
03) Power Grid
04) GAIL (Gas Authority of India Limited)
05) National Mineral Development Corporation
06) SAIL (Steel Authority of India Limited)

Two bankers estimated that state-owned insurance companies like Life Insurance Corporation of India (LIC), and New India Assurance Company could see the government bringing down its shareholding from the current 100%. ”The question is - who would be in a position to take up the stake sale? - and hence it is likely that LIC’s divestment would be by way of the capital market,” said a second banker.