The Narendra Modi government, on Wednesday, invited bids from merchant bankers for its stake sale of National Mineral Development Corporation (NMDC) as it struggles to limit the fiscal deficit to 4.1%.

With two months left for the fiscal year to end, the government is not even close to its $10 billion stake sale programme. Until now, it has been able to raise only $300 million in December.

The NMDC stake sale is expected to fetch the government about $893 million; the government holds 80% stake in the mining company. The shares will be sold through an exchange-based bidding platform, noted a finance ministry.


With NMDC sitting on a pile of cash, Phani Sekhar, a fund manager at Angel Broking, wondered why the government should go for a stake sale, when it could have issued itself a special dividend. He called the move as "selling the family silver".

IndianOil Corporation

The government is also considering a stake sale in the state-owned oil retailer IndianOil Corporation (IOC) where a 10% stake sale would bring in about $1.3 billion.

Government sources said that a cabinet meeting will discuss the disinvestment process, however, telecom minister Ravi Shankar Prasad denied such a move, speaking to the press after the meeting.

Stalled Process

Initially, the government had planned to offload Coal India Ltd (CIL) and Oil and Natural Gas Corp (ONGC). However, the process was stalled as a result of opposition from labour unions, uncertainty over ONGC subsidy share in subsidies and CIL's production quota, and the fall in crude prices.

The stake sale would have seen a 10% offload in CIL and a 5% stake sale in ONGC, together valued at $6.3 billion.

Alternate Stake Sales

Given the circumstances, the Modi government has focused on alternating the organisations that could go for a stake sale at an early date. Discussions indicate that hydro-power generator – NHPC and Dredging Corp would see their government holding reduce.

Officials confirmed to Reuters that the government has also decided to cut budgeted public spending by almost a fifth, at 20%.

Fiscal Deficit Target

The likelihood of the Modi government missing the UPA government's 4.1% fiscal deficit target, looms over all policy decisions that have to be made in the coming days. If missed, this would be the fifth year in a row where India has missed the fiscal deficit target.

Bureaucratic delays and market volatility has also contributed to the stake sale inertia, and the problem was compounded by the purge of government's top economic policy team, affecting the process.

"We would be lucky if we could meet even 50 percent of the target," said a finance ministry official.