Central govt counts on divestment to deliver

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As it tries to meet a tight fiscal deficit target for 2017-18, the government hopes that the proceeds from disinvestment would not only be met but exceeded, by as much as Rs 20,000 crore. 

This will compensate for some of the expected shortfalls in other revenue heads, officials have told Business Standard.

The divestment target for FY18 is Rs 72,500 crore, the highest fixed so far for any year. After the successful launch of the government’s Bharat-22 exchange-traded fund last month, the proceeds so far are Rs 52,500 crore, already ahead of 2016-17’s Revised Estimate of Rs 45,500 crore.

The finance ministry’s department of investment and public asset management has options (Dipam) which, it is hoped, will take stake sale proceeds even beyond Rs 90,000 crore. “We are sure the target will be met. Given the pipeline of stake sales Dipam is working on, it could be exceeded comfortably,” said an official involved in the Budget-making process.

“Even a Rs 20,000-30,000 crore shortfall from other revenue items, including goods and service tax (GST), could be made up by divestment. Anything more than that and the fiscal situation really gets strained,” said a second official.

The basis of this optimism is a mega deal in the state-owned enterprise space, of energy behemoth ONGC acquiring Hindustan Petroleum. Officials are confident the deal, which could get the exchequer at least Rs 30,000 crore, will happen this year.

There are also a number of planned initial public offers (IPOs) of equity, offer-for-sales (OFS) and buybacks. Dipam is working with the defence and rail ministries on a number of IPOs - Ircon, RITES, Hindustan Aeronautics, Garden Reach Shipbuilders, Bharat Dynamics, and Mazagaon Dockyards, among others.

It is also working on some OFS proposals. Sources say it could offload 10 per cent stake in NHPC, Power Finance Corporation, and Steel Authority of India; 15 per cent in NLC; five per cent in Rural Electrification Corporation; three per cent in Indian Oil. It had sold seven per cent in NTPC this August. Officials say four or five of the IPOs and OFS mentioned could garner Rs 10,000-15,000 crore for the exchequer.

The fiscal deficit target for 2017-18 is Rs 5.46 lakh crore or 3.2 per cent of gross domestic product (GDP). As of end-October the deficit was already 96.1 per cent of the full-year target. For April-September, the year’s first six months, the deficit was 6.3 per cent of GDP. The finance ministry has reined back spending over recent months and will continue to do so, after massive frontloading in the first half of the year. 

On the revenue side, there are concerns. There could be a tax collection shortfall of Rs 20,000 crore due to revision in GST rates, said Sushil Modi, chairman of the group of empowered finance ministers on the subject, at the latest GST Council meeting. Central officials say that is his view and any shortfall could also be offset by greater compliance and increase in economic demand.

Also, as reported earlier by this publication, the Central Board of Direct Taxes has asked for lowering of direct tax targets by Rs 20,000 crore compared to the Budget Estimate, due to slowing economic growth.

Also, while the Reserve Bank of India has paid the Centre a dividend of Rs 30,600 crore, the latter says it was expecting around Rs 43,000 crore. There is no certainty that RBI will give the rest.

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