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Wednesday 29 January 2020

Indian Oil strategic stake sale now a desperate need

An urgent need to sell off stakes in the PSU is felt now as the government has consumed nearly the whole of the targeted fiscal deficit

The Narendra Modi government is about to load off a big chunk of government shares from state-owned oil company Indian Oil. The Centre seeks to reduce government participation to below 5% in this organisation. Officials expect that the strategic sale will add Rs 33,000 crore to the public exchequer.

However, control of the country’s largest oil refining company will stay in the hands of government and state-run companies, sources said.

A proposal to reduce the government’s stake in PDSUs to sub-51% by selling off stakes to competent companies has long been under consideration of the Modi government. Indian Oil is one of the companies on the list.

The Modi cabinet may decide on this issue next week. It should be noted that 51.5% of Indian Oil’s stake is directly in the hands of the Union government. In addition, three other public sector companies, LIC, ONGC and Oil India Limited (OIL), together own an additional 25.9%. Among these companies, ONGC is looking for buyers, too, as HPCL is proving a burden. Reducing government stakes in BPCL to below 53% is already sanctioned.

The reason to load off more shares is as follows.

The government has targeted a Budget deficit to 3.3% of GDP in the current year. However, due to the slowdown, the revenue collection is low and it is doubtful how successful the government will be in meeting that target.

The government had noticed by the time half the current financial year passed that 92.6% of the deficit it could afford as per the Budget was already gone. This was albeit lower than 95.3% in April-September, 2018-19, assisted by transfers from the RBI.

Now tax revenues are down too. So, the government has drastically reduce spending and disinvest to achieve the FY20 fiscal target of 3.3% of GDP. The government is, therefore, compelled to reduce the cost of infrastructure and development projects as the money going into welfare is a political hot potato. In this situation, the Centre is emphasising maintenance of financial discipline of the government through the process of divestment.

The target is to raise a record amount of money this fiscal year by selling shares of state-owned companies. The Centre has decided to raise Rs 1 trillion this year by selling stakes of PSUs alone.

The Department of Investment and Public Asset Management (DIPAM) has been made the nodal agency for making all strategic decisions regarding strategic sales throughout the process. In addition, the government will talk to all stakeholders to seek EOIs, sources said.

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