Sell-off in state run companies is critical to keep the fiscal deficit under check
GN Bureau | May 13, 2015
The government has approved stake sales in giant state-owned units Indian Oil (IOC) and National Thermal Power Corporation (NTPC) to mop up close to Rs 10,000 crore. The proposal was cleared at union cabinet meeting on Wednesday.
While ten per cent stake in IOC would yield Rs 7,915 crore at the current price of Rs 326.70 a share, a 5 per cent equity offload in NTPC would give Rs 557 crore to the government at prevalent market price of Rs 134.80. These stake sales are part of the ambitious disinvestment drive to raise Rs 69,500 crore by March 2016. Sell-off in state run companies is a critical element of finance minister Arun Jaitley's plan to boost spending and yet keep the fiscal deficit under check.
As the news came out the IOC stock fell over 2 per cent, while the NTPC stock was trading nearly 5 per cent down. The two stocks underperformed the broader Nifty and the Sensex which were trading flat.
The government has set a target of Rs 41,000 crore from disinvestment in the current financial year against Rs 26,000 crore in the previous year. Besides, the government hopes to get Rs 28,500 crore from strategic sales.
The finance ministry has been pushing for sale of stake in Indian Oil during the last financial year but had to drop the plan as there was no clarity on the subsidy-sharing mechanism. The petroleum ministry had opposed it as the fall in crude prices have an impact on valuations. With oil prices beginning to rise and more clarity on subsidy sharing, the government seems to have taken up the Indian Oil stake sale.
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