India deferred on Thursday a decision on plans to sell stakes in carmaker Maruti Udyog Ltd and engineering firm BHEL, a move analysts reportedly saw as bowing to pressure from the government’s communist allies.
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According to Reuters, the government had announced plans to sell a 10% stake in electrical firm Bharat Heavy Electricals Ltd (BHEL) and up to 8% in car maker Maruti as part of its privatisation drive aimed at raising funds to bridge its huge deficit and meet stepped-up social sector spending.
Analysts reportedly said the latest move showed the federal coalition had succumbed to pressure from its communist allies, who have strongly opposed the overall privatisation programme in general and the decision to sell stakes in Maruti and BHEL in particular.
Junior coal and mines minister Dasari Narayan Rao told Reuters the decision on the two firms had been postponed until the next cabinet meeting.
The finance and heavy industry ministers had on Tuesday agreed on plans to sell stakes in Maruti and BHEL in the next financial year, instead of this year as previously planned and were expected to get the cabinet’s nod for the sales, the news agency noted.
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By GlobalData“There is definitely strong opposition from within and outside the United Progressive Alliance government,” TK Bhaumik, economic adviser with the Confederation of Indian Industry, told Reuters, adding: “It will be difficult to carry forward the process in an election time.”
Reuters noted that three key states – northern Bihar and Haryana and eastern Jharkhand – go to the polls next month and the government is likely to soft-pedal on any tough economic steps for the time being.
New Delhi-based Maruti, which had a blockbuster stock market debut in July 2003, controls half of India’s booming car market thanks to its small, cheap cars, the news agency noted.
Reuters said Maruti – which competes with the Indian units of Hyundai Motor, Ford and local firm Tata Motors – has a market value of $US2.7 billion.
Communist parties, who oppose privatisation of state-run firms fearing massive job losses, have dubbed the decision to sell stakes in these two firms as a violation of the ruling coalition’s policies, the report said, adding that, based on current prices, the government aims to raise 16 billion rupees ($365 million) for 10% of BHEL and 8-9 billion rupees for up to nearly 8% of Maruti.
Reuters noted that, only a few weeks ago, a government official had said the government hoped to complete the sales in this financial year to March to help trim the fiscal deficit to 4.4% of gross domestic product from 4.8% last year.
Rating agencies reportedly say India’s high fiscal deficit is a constraint to faster growth, underscoring the need to speed up privatisation and cut government borrowings.
The government has plans to raise 40 billion rupees from asset sales this financial year, and has already raised 26.8 billion rupees from the sale of about 5% of the country’s top power generator, National Thermal Power, Reuters added.
