By Manoj Kumar and Rajesh Kumar Singh
NEW DELHI Aug 22 The collapse of the rupee is
derailing India's hopes of raising more than $6 billion from the
sale of stakes in state-run firms, jeopardising a key plank of
Finance Minister P.Chidambaram's blueprint to reverse the
country's economic malaise.
Investor confidence has evaporated amid fears over the
rising cost of funding India's gaping current account deficit,
prompting New Delhi to delay plans to raise much-needed funds
through partial privatisations, finance ministry sources said.
Hit by the U.S. Federal Reserve's preparations to wind down
monetary stimulus, which is driving up borrowing costs globally,
India's rupee has lost 17 percent since May - touching
an all-time low of 65.56 to the dollar on Thursday - and the
stock market is close to its lowest in 12 months.
"In the current situation, we cannot go to the market. We
may have to wait for some more time before the market
stabilises," said an official who attended a meeting with the
finance minister on Monday to plan for the next three months.
Three weeks ago the cabinet deferred a decision on selling
an 11 percent stake in hydropower producer NHPC, which
it had hoped would raise $300 million, after the power ministry
raised concerns it would be undervalued in the current market.
Chidambaram announced in February a target of 400 billion
rupees ($6.2 billion) for this fiscal year through partial
sell-offs of state-run firms, as part of his efforts to stave
off a threatened ratings downgrade by reducing the fiscal
deficit to 4.8 percent of GDP.
His ministry has not officially abandoned the target - which
many private sector economists already considered optimistic -
and is hopeful conditions will improve before the financial year
ends next March.
The top official from the finance ministry's divestment
department, Ravi Mathur, is on a tour this week to Singapore and
Malaysia to drum up investor interest in the stake sales and in
a proposed exchange-traded fund of state-run companies.
"We need a short window of two months to raise the funds," a
senior government official with direct knowledge of the
stake-sale programme said. He asked not to be named because of
the sensitivity of the issue.
"No one can say with certainty for how long the market will
remain volatile," he said, adding that if it stabilised by the
end of next month, the government could sell stakes in companies
in October and November.
Past experience, however, shows that hitting the stake-sale
target might be difficult. Similar goals were missed in each of
the last three fiscal years, when market conditions were better.
India raised 239.56 billion rupees in fiscal 2012/13 against
an initial target of 300 billion, and 138.94 billion rupees in
the previous year against a target of 400 billion.
While a weak rupee makes Indian assets more affordable to
foreign buyers, with no end in sight to the current crash rupee
assets bought now will likely lose value in dollar terms.
Currency weakness particularly reduces the attractiveness of
Indian Oil Corporation (IOC). Sales of shares in IOC
and Coal India Limited were expected to raise the bulk
of the total stake sale target for this year.
IOC, the country's biggest refiner and retailer, sells fuels
at state-set lower prices and gets partial compensation for the
revenue losses through federal subsidies. However, because of
the rupee's slide, its oil import bill has risen sharply, which
has derailed plans to end subsidies on diesel by June 2013.
IOC's shares have dropped 30 percent since the beginning of
May, when the rupee began its descent.
"All our oil companies now face difficult times," another
finance ministry official said, noting it would not be easy to
sell the stake in IOC because of the growing revenue losses.
In this fiscal year, which began in April, the government
has so far raised $203 million by selling stakes in seven
companies, including Hindustan Copper, MMTC
Indian Tourism Development Corp. and Neyveli Lignite
Plans to sell a 10 percent stake in Coal India have already
been scaled back to 5 percent because of resistance from unions
that now oppose any privatisation of the world's largest coal
company. They plan a three-day strike next month to stop the 5
percent sale from going ahead.
"Maybe the process (stake sale) itself might get delayed.
(It) may not take place unless the market looks up," Coal
India's personnel and industrial relations director, R. Mohan
Das, told Reuters.
In June, Chidambaram said the government planned to raise
nearly 200 billion rupees ($3.15 billion) from the sale of the
10 percent stake in Coal India alone. Now the government could
expect to raise just $2 billion jointly from the sales of Coal
India and IOC stakes, given current market valuations.
The cabinet approved the IOC share sale this month, the
officials said. Divestments in Hindustan Aeronautics Ltd and
Bharat Heavy Electricals Ltd. before March 2014 are
also key to the government's plans.