Given that divesting a 10% stake in Coal India Ltd (CIL) alone can help the government mop up a third of its FY14 disinvestment target of R54,000 crore, it is important the government not give in to the strong arm tactics of CIL’s trade unions. The government reserved 10% of the CIL IPO in 2010 for the unions and is even contemplating reducing the offer for sale (OFS) by 10% in order to give employees another lot of shares at a discount next month—the idea is to offer a discount to the lowest bid received in the OFS. While keeping unions happy is not a bad idea, the costs of doing this have been quite high. Thanks to CIL not being able to meet targets, coal imports crossed 100 million tonnes in the April-December 2012 period—coal imports used to be 0.5% of the GDP in the pre-Lehman years and are now around 1%% of the GDP. Despite the PMO’s intervention last year to get CIL to sign fuel supply agreements (FSAs) with various power companies, CIL has managed to get away with conceding little—serious penalties for non-supply of coal to private sector firms kick in only if CIL can’t supply 65% of the promised amount, in effect leaving companies no option but to import a third of their requirements. While the finance minister had announced in the Budget that a PPP policy to bring in private sector players into coal mining, the policy has yet to see the light of day.
Equally confusing is why the government is not rushing in to push through more disinvestment proposals. Last year, bunching the OFS meant the government was able to mop up only R23,956 crore against the budgeted R30,000 crore. This time around, not only is the target much higher at R54,000 crore, the possibility of an early election also needs to be kept in mind. More important, while FII investments into India fell after the Budget, they have once again started to rise—from $4.4 billion in December 2012, FII equity inflows fell a bit to $4.1 billion each in January and February 2013, then collapsed to $1.9 billion in March and $1.2 billion in April before rising to $1.7 billion till May 24. While CIL’s unions are yet to agree to the divestment, there is no such opposition in the case of the sale of the residual stake held by the government in Balco and Hindustan Zinc, and Anil Agarwal has indicated his willingness to participate in an auction—this could fetch anywhere over R15,000 crore. The market value of the shares held in Axis Bank, L&T and ITC by SUUTI is over R54,000 crore. In other words, there is a lot of money the government can get from disinvestment, and the time table is best advanced while the markets are holding up.