India will fall well short of its $9.5 billion privatization target this year, despite a big stock market rally that has attracted foreign investors, two government sources told Reuters.
Prime Minister Narendra Modi's ambitious selloff agenda has met resistance from labor unions and faces delays due to bureaucratic upheaval caused by a purge of the top team at the finance ministry that handles asset sales.
Officials say a fall in global oil prices will reduce the government's subsidy burden, giving it a greater chance of hitting its ambitious fiscal deficit target of 4.1 percent of gross domestic product in the fiscal year to March.
But they warn that revenues from share sales could reach just half the target, forcing Modi to take the axe again to spending after he last week banned bureaucrats from flying first class and staying at five-star hotels.
"At the most we could raise 250-300 billion rupees ($4.1-$4.8 billion) from disinvestment this year," one senior finance ministry official with direct knowledge of the matter told Reuters.
India's bloated public sector is a legacy of its Soviet-style planned economy but, despite Modi's pro-business platform, it avoids even using the word "privatization".
"It's more a divestment model," Finance Minister Arun Jaitley told a World Economic Forum conference on Wednesday, stressing that the state would keep control over strategic state enterprises.
In his maiden budget, Jaitley set a target of raising 584 billion rupees ($9.5 billion) from the sale of shares in companies in which the state has majority and minority stakes.
Yet the government has so far raised 518 million rupees, less than one thousandth of its target, with more than half of the fiscal year gone. The budget assumes that sell-off proceeds will generate 5.6 percent of total revenues.
"Given the sluggish growth of tax revenues in (the) first half of 2014/15, meeting the disinvestment target would be crucial to ensure that the fiscal deficit remains in line with the budgeted level," said Aditi Nayar, an economist at ICRA, the Indian arm of rating agency Moody's.