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State-Owned Firms May be Asked to Bail Out Struggling Indian Government

In order to try and repair public finances and the country’s strained budget, India’s Finance Minister P. Chidambaram hoped to raise around $9 billion this year from selling state-owned assets. The fear is that failing to meet the budget would risk India’s investment-grade credit rating. Already at the lowest grade on the Standard & Poor scale, a further cut would see it ranked as ‘junk’, raising the cost of borrowing on all debt, and possible panicking global financial markets.

So far, Chidambaram has only managed to raise 14.33 billion rupees ($232 million) through sales of the government’s stakes in various companies, around three percent of the total needed by the end of the year.

In order to raise money more quickly the government is considering demanding that the state-run companies pay higher dividends this year. Finance ministers told Reuters that the decision will be made in the new year.

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“We will see which companies have good cash reserves. If they (companies) have made good profits and have no immediate plan to spend the money, we may ask for a special dividend.”

A global roadshow planned to take place this month in an effort to attract investors to buy a total 10% stake in Indian Oil Corp (IOC), had to be cancelled at the last minute, but has been rescheduled to take place in December, along with a roadshow for Coal India.

It is expected that the IOC share sale will earn about 40 billion rupees ($647 million), and a five percent stake in Coal India would be worth 100 billion rupees ($1.62 billion).

Chadimbaram has stated that he is confident of meeting the target, or at least getting close to the $9 billion by the end of the year. Other share his confidence, but believe that he may have to find other sources of revenue, or cut deeper into government spending, in order to achieve the target.

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The ministry officials told Reuters that the spending budget will likely be cut by 200 billion rupees ($3.23 billion), or more, if they hope to meet the deficit target of 4.8 percent of GDP. Even with the cuts state firms may be asked to pay higher dividends than the 298.7 billion rupees ($4.83 billion) budgeted back in February.

Last year the government had only raised five percent of the target amount through assets sales in the first six months of the year, but a surge at the end of the year helped them; this year they are not expected to be so fortunate.

By. Joao Peixe of Oilprice.com



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