As part of a program to raise billions of dollars through partly privatizing state-owned companies, India sold stakes in a coal mining firm Friday. The program is intended to help the government to control its fiscal deficit as it seeks to boost the country’s economy.
The 10 percent stake in Coal India that investors snapped up Friday will bring in about $3.7 billion for the government.
The company is the world’s largest coal producer and the largest supplier of coal within India.
The buoyant response to the sale of Coal India stock has given a shot in the arm (boost) to the government’s plans to raise about $10 billion by offloading stakes in several other state-owned companies.
These mammoth firms are a legacy of the country’s former Soviet style planning system, but privatizing them has been politically sensitive.
The sale of Coal India stocks is the biggest attempted so far. It went ahead despite protests from labor unions.
Economist N.R. Bhanumurthy at the National Institute of Public Finance and Policy in New Delhi said selling stakes in state-owned firms will boost government finances and help it meet its target of trimming the budget deficit to a seven-year low of 4.1 percent.
He said this will ensure that India’s rating is not downgraded and the country remains attractive for investors. “It is also because the rating agencies are very keenly looking at India’s behavior in terms of managing the fiscal deficit. So all these measures that we see at the moment are definitely in the right direction and we are very hopeful that the government can manage achieving the fiscal target in the current year,” he stated.
Reviving investor confidence
The government, which took office last May on the promise of reviving the economy, has been trying to woo foreign investors to kick start an economy whose growth plummeted to a decade low in 2013.
The series of steps to revive investor confidence includes reducing India’s notorious bureaucratic hurdles, simplifying investment rules and tax laws, and a promise to build infrastructure.
Economist Bhanumurthy said India is again on the radar (being looked at by) of foreign investors.
“Overall the kind of policies that is being pushed by the new government indicate that right now Indian economy is in right direction," he noted. "And we are hoping for better capital foreign inflows so we can expand the manufacturing sector.”
The successful sale of Coal India stock will be seen as another signal that investor confidence is returning.
The World Bank and the International Monetary Fund have forecast in recent reports that India’s economy is set to revive and could overtake China’s by 2017.