Everything is possible with proper planning and coordination. However, in India we often excel in the art of converting something possible into impossible.
In my view, the chest-beating claims like raising Rs 100,000 crore (Rs 1,000 billion) from the capital market in one year, or even better, for several years, is big talk that can have several lasting negative effects.
The capital market, both primary and secondary, was almost dead for two years. The primary market finally revived in 2003-04 with the success of the Maruti initial public offer.
The government deserves full credit for overcoming several roadblocks to meet the divestment target by raising nearly Rs 15,000 crore (Rs 150 crore) in just two weeks through six IPOs.
It should, however, be remembered that this success has not been smooth sailing. The market was initially ready for the divestment of HPCL and BPCL, which then got caught in a political and legal imbroglio. Thereafter, bunching of six issues to beat the deadline dampened the sentiment of the then-bullish market.
The larger IPOs finally got subscribed with generous support from local and foreign institutions and a few corporations, while retail investors and even the employees did not show a similar enthusiasm, in spite of special discounts.
Even now, issues like the handling of allotment of shares and refund of surplus funds have not been sorted out. Even as small investors smart under the chaotic post-IPO situation, the claim of raising Rs 100,000 crore every year, without any transparent ground work, political or legal consensus, seems unrealistic.
In this context, it may noted that the assets under the management of the mutual fund industry as a whole, including the UTI, is about Rs 140,000 crore (Rs 1,400 billion), of which the equity assets are just about Rs 21,000 crore (Rs 210 billion).
In a lighter vein, the mutual fund industry could learn a few lessons from the government on how to raise large equity funds so that they can also participate in the process in a more meaningful manner.
I started by saying everything is possible. The government has a number of successful companies that are already earmarked for divestment. Besides, there are many more institutions that have not even been discussed for divestment.
This includes the Indian Railways and its subsidiaries like Konkan Railways, Kolkata and Delhi metros, Concor, Ircon, IRFC, Rites and so on. Further, the telecom and media business are attracting huge attention from investors.
According to a recent report, Reliance Infocomm has been valued at Rs 70,000 crore (Rs 700 billion), the market cap of Bharti TeleVentures is more than Rs 30,000 crore (Rs 300 billion).
On this valuation, BSNL and Prasar Bharti can help in meeting the suggested annual targets comfortably.
The way divestment has been managed so far may be all right for reducing the fiscal deficit and to support uneconomic and wasteful subsidies and government expenditure.
However, unless the divestment targets are genuinely restructured and privatised, the government will be selling national jewels cheap.
Therefore, the government and the political system as a whole should work on a consensus to identify target companies, which should then be genuinely restructured and empowered to operate freely.
Only then should the shares of these companies be offered for sale to best serve the interest of the country and its economy.
Until then, it will be advisable to go slow on divestment by raising smaller amounts, to serve the limited objective of raising funds.
This also reminds me that for many years, during the Controller of Capital Issues regime, there used to be a closed period during June/July for the government to raise funds through issues of government securities.
Private-sector companies were required to stay out of the capital market during this period. The market condition has changed a lot since then. Even then the talk of large and continuous divestment by the government can close the market for longer periods for small- and medium-sector companies from the private sector.
The market mood can also change rapidly from bullish to volatile and then bearish. Even the Chinese government companies, for which there is generally a large international appetite, are realising that floating IPOs in the US market after a few large issues is becoming sticky.
While, therefore, it is possible to raise Rs 100,000 crore by the government from the capital market, in the overall interest of the economy and the country, there should be more serious introspection and discussions before even throwing up such large numbers.
The writer is director, financial services, Aditya Birla Group. The views expressed here are personal.
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