Major brokerage firm CLSA Ltd. has predicted that Modi led government may do for further disinvestment amid lower revenue generations and tax cuts to meet the fiscal target. The Hong Kong-headquartered firm has identified Bharat Heavy Electricals Limited (BHEL), GAIL India, Hindustan Zinc and National Aluminium Company Limited (NALCO) as the possible Public sector undertakings (PSUs) in which the government may go for disinvestment.
As per a report in The Economic Times, the government has limited scope privatisation in PSU stocks which may put extra selling pressure on ONGC, NTPC, Power Grid, Indian Oil Corporation, and Coal India.
The government has earned $12 billion via PSU stock sales through ETFs in the last three years and fear of more such sales will put supply pressure in the market on non-disinvestment candidates. - CLSA
CLSA further highlighted that it would be a major challenge for the government to the privatisation of Bharat Petroleum Corporation Limited (BPCL) before the end of running fiscal year. "The experience of three previous successful cases back in 2001-2002 shows that privatisation is a time-consuming process and takes 6-16 months between global tender and deal consummation, thus, concluding the BPCL privatisation before Mar'20 is challenging," added CLSA.
Why is government opting for aggressive disinvestment?
In simple terms, a government is majorly dependent on the tax collections for its revenue generation. The snail-paced Indian Economy has led to the government getting lower than expected GST collection from the companies. As per an estimate by CLSA, tepid growth of tax collection and the relief package provided by the government have created a shortfall of more than Rs. 2 lakh crore in the running fiscal year.
So with the lower tax collection from the private companies, the government either goes for loans from the market or disinvest the companies in which it has majority stakes. In recent times, the government is aggressively looking to disinvest Air India and BPCL to meet its fiscal deficit target. Notably, the centre has set a fiscal deficit target of 3.3% of the GDP for the running fiscal year.
CLSA, however, have argued that the disinvestment target may grow further if the government goes for further tax cuts to give more money in the hands of people and firms. Since the government's other potential non-tax revenue sources are already constrained it is likely to go for further disinvestment. CLSA added, "Even assuming a 50-70 bps (basis points) relaxation, the current year's record $15bn (billion) disinvestment target may only grow, especially if more tax cuts happen."