India’s plans to sell state-owned firms will drive the economy toward $5 trillion, tycoon says

Passengers at Mumbai's CST railway station, on March 20, 2020. (Photo: PTI). Sketched by the Pan Pacific Agency.

SINGAPORE, Feb 3, 2021, CNBC. India’s efforts to privatize state-owned companies will take the country closer to becoming a $5 trillion economy, a top Indian business leader told CNBC on Wednesday, CNBC reported.

The government has a disinvestment target of 1.75 trillion rupees (about $24 billion) for the next fiscal year which starts on April 1, Finance Minister Nirmala Sitharaman said this week during her budget announcement.

It means the government will divest by selling state-owned assets to the private sector, or listing them on the stock exchange.

That would include completing the privatization of state-owned companies such as Air India, Container Corporation of India and Shipping Corporation of India, among others. It would also involve a government proposal to take two public sector banks and a general insurance company private.

“This is a very good move,” Anil Agarwal, executive chairman of diversified natural resources firm Vedanta Resources, said on CNBC’s “Street Signs Asia.”

He said the government’s stake sale efforts will provide a “great opportunity, all over the world, for people to come in and invest.” It would also make the state-owned companies more productive, he added.

Agarwal set up a $10 billion fund with U.K.-based investment firm Centricus last year, aimed at investing in government companies that are up for sale. Local media quoted him as saying that 5% of the fund is his own money, while the rest will come from investors.

Strong competition expected
Agarwal told CNBC on Wednesday that his investment fund has had “tremendous response” from investors and that it aims to acquire about 15% to 20% of the public companies up for sale.

Some of the companies he said he’s looking at include state-owned oil and gas giant Bharat Petroleum Corporation, Shipping Corporation, Container Corporation and Hindustan Copper.

Agarwal said the fund would evaluate the companies on sale, do the necessary due diligence, and see where it can add value before making a purchase. He added that he expects lots of competition to acquire those companies. “This will definitely lead towards $5 trillion economy for the country,” he said.

For the next fiscal year, India set a deficit target at 6.8% of its gross domestic product — more than double the levels it had targeted before the pandemic. Economists said it underscored the government’s shift in strategy, from survival to revival of growth.

‘Prudent strategy’

The Indian government’s overall revenue estimate projection and growth predictions for gross tax revenue look credible and will most likely be met, according to Kaushik Das, chief economist at Deutsche Bank.

The disinvestment target, about 0.8% of GDP, came in lower than market expectations, Das said in a recent note. “This is a prudent strategy,” he added.

He explained a large shortfall in disinvestment, as had been the case in the current fiscal year, could “jeopardise the fiscal arithmetic easily and lead to an unhealthy uncertainty premium being priced in by the markets persistently.”

Experts noted that with limited changes to the tax structure, the government will rely on greater tax compliance and higher disinvestment proceeds.

The government’s ability to meet its disinvestment target would rely also on the successful initial public offering of the state-owned insurer Life Insurance Corporation of India, according to Das.

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