Govt may cut stake in Coal India, Hindustan Zinc, to pay for subsidies increased due to Ukraine war

The Indian government’s divestment push has so far delivered mixed results, such as the sale of an ailing Air India, and the unsuccessful privatisation of Bharat Petroleum. Although the original target was to raise Rs 1.75 lakh crore from stake sale in state-owned firms, the Indian government could only raise Rs 13,530 crore due to the pandemic. After slashing the target by more than 50 per cent to Rs 78,000 crore, the Indian government may reportedly sell small parts of its holdings in Coal India and Hindustan Zinc among others.

Divestment in a time of growth

According to Bloomberg, the stake to be offloaded by the government from Coal India, Hindustan Zinc and Rashtriya Chemicals, will represent 5-10 per cent of their holding. Apart from these three, two more including a firm under the Ministry of Railways, will also be part of the divestment to raise more than Rs 16,000 crore. The decision comes at a time when Coal India is amping up production, while Hindustan Zinc has been named among the world’s three most sustainable mining firms.

Making up for hefty subsidy bills

The government is having to make the sale to pay for subsidies, which have become costlier thanks to the war in Ukraine that has affected fuel and gas prices. Even for this year, the government has only fetched a third of the targeted Rs 65,000 crore from sale of assets, despite a Rs 22,000 crore share sale by LIC.

More divestment to increase efficiency?

Shares of Coal India and Rashtriya Chemicals are in a strong position to bag funds for the government, after surging by 46 per cent and 58 per cent respectively. Earlier this year, the Finance Minister had said that divestment is a way for the state to improve productivity at government-owned companies. As part of the strategy, the government is also considering selling stakes in public sector banks.