The government is scrambling to put together a 'Plan B' to raise even a fraction of its $10 billion target from asset sales, officials said, with potential new sales including part of its stake in refiner Indian Oil.
Prime Minister Narendra Modi's government, elected last year, needs to complete some major deals to deliver on a budget promise to trim the fiscal deficit to a seven-year low by the end of the year in March.
Pressure on the government increased with the Reserve Bank of India's surprise move on Thursday to cut interest rates, placing the onus on the government to help revive the economy by putting public finances on a firmer footing.
One official in the finance ministry's department of divestment said on Friday the government was now considering putting other assets on the block, including 10 per cent of IOC, worth $1.3 billion at current market prices.
Top of the sell-off list are Coal India and Oil and Natural Gas Corp (ONGC), in which the government plans to sell 10 per cent and 5 per cent respectively, stakes that are together worth around $6.3 billion at current prices, a large part of the target.
But demand has been lukewarm, not least due to plunging oil prices and questions over ONGC's share of fuel subsidies.
"Divestment is a major concern. This year again we are likely to fall well short of the target," another government official said.
Easy way out?
A sale of IOC, in which the government owns nearly 69 per cent, could be more welcome in the market than either ONGC or Coal India, where fund managers want clarity on coal output targets, and on the amount of subsidies ONGC will need to pay.
"Why sell ONGC and Coal India when the regulatory issues have not yet been resolved?" said Avinash Vazirani, manager of Jupiter Asset Management's India fund.
India subsidises some types of fuel, sharing the cost between the government and upstream companies. The per centage each pays is decided quarterly, but investors would prefer a fixed formula, which would make profits easier to forecast.
"Global financial investors are staying away from commodities given the fall in prices. So, Coal India and ONGC will find it difficult to attract quality investors," said Deven Choksey, managing director, KR Choksey Shares & Securities.
"In the case of IOC, it is mainly a domestic retailer and has a lot to do with the domestic economy. The fall in crude prices and government decision not to charge (an) oil subsidy will make it (IOC) a better choice in the current environment."
Modi's push to reduce hefty state ownership that is a legacy of a once Soviet-style planned economy has been thwarted by sliding oil prices, delayed reforms, opposition from unions and bureaucratic fumbling.
Several officials have said the government is highly unlikely to hit its target by March 31. To date, it has raised just over $300 million, including the December sale of 5 per cent in steelmaker Steel Authority of India (SAIL).
In the past, government share sales that have met with little institutional appetite have been rescued by state-owned Life Insurance Corporation of India, India's largest equity investor. A substantial participation from LIC again could raise questions over how far the sales are simply ticking an accounting box.
LIC took almost three-quarters of the shares in SAIL sold by the government in December.
"Issues need to be sorted out, otherwise there won't be any genuine interest in the divestments," said U R Bhat, managing director at Dalton Capital.
"There is goodwill but it should translate into real policy action."
Additional reporting by Clara Ferreira Marques, Abhishek Vishnoi, Indulal PM in Mumbai
