Good news for Jaitley: Low-hanging fruit can yield Rs 1,00,000 crore this year itself

If there is one minister who must be spending sleepless nights, it surely must by Finance Minister Arun Jaitley, who has been left with a half-gutted exchequer, complete with falling revenues and unpaid subsidy bills.

However, he need not fret too much. The truth is, if he is bold enough, there are several low-hanging fruit available for him to pluck, and most of it can be collected in the first year itself. The rest can be harvested in the coming years. They may not even need to be harvested if the economy booms after a year or two of repair work and tax revenues leap.

The main low-hanging fruits available for Jaitley to collect are thanks to the NaMo bounce in the stock markets. In fact, the sale of shares and assets unrelated to the public sector could bring in close to Rs 1,00,000 crore this year itself. Here’s how.

#1: The Special Undertaking of UTI (SUUTI) holds valuable private sector shares like Axis Bank, Larsen & Toubro and ITC and many other lesser-known companies collectively valued at around Rs 60,000 crore. P Chidambaram bit into some of this fruit by selling 9 percent of Axis Bank for Rs 5,500 crore in March. Selling the remaining shares of Axis Bank, L&T and ITC in the open market will get Jaitley around Rs 50,000 crore at least in this financial year.

#2: The buyback of the residual stakes in two previously privatised companies – Balco and Hindustan Zinc – by the promoters of Sterlite is likely to give the government at least Rs 20,000-21,000 crore. This was the price being talked about before the market boomed. Now, the buyback valuation could be higher.

#3: The provision for capitalising banks from the budget can be done away with, now that their shares are buzzing. In his budget, Chidambaram made a provision for Rs 11,200 crore for recapitalising banks, but this may not be required at all if all public sector banks are allowed to raise capital from the market till they reach 51 percent government holding. The current market valuation of 24 major public sector banks is around Rs 4,50,000-4,75,000 crore. Government holdings range from 56-70 percent in major banks (SBI, Punjab National, Bank of Baroda, Bank of India, Canara Bank), and 60-80 percent in the rest (Central Bank, IDBI Bank, Indian Bank, IOB, and Bank of Maharashtra being in the top range).

If all banks are asked to raise any amount of capital they need as long as they keep government holdings above 51 percent, the government can write back the recapitalisation provision of Rs 11,200 crore back for use in other areas. A 10 percent dilution on the overall market value of public sector banks will yield over Rs 45,000 crore banks, and some banks which can’t raise the money can be asked to pick up stakes in smaller banks – for offloading later. This recapitalisation will enable banks to write off a larger chunk of bad loans and allow them to resume their lending cycle – this reviving the investment cycle.

#4: The NDA government is said to be toying with the idea of breaking up Coal India into several companies to improve productivity and profits. A far easier thing to do would be to let Coal India list all its subsidiaries on the stock exchanges by offloading minority stakes to new investors through IPOs. Some of this money can be remitted to the government through special dividends. The government would get 90 percent of this money, as it is 90 percent owner in Coal India. Only 10 percent of the profits has to be shared with other investors. It should be possible to earn at least Rs 10,000-20,000 crore by such listings in 2014-15.

#5: Public sector land sales can be the milch cows from 2015-16 onwards. Currently, government-owned port trusts, railways, central public sector undertakings, defence, the airports authority and the department of posts own large tracts of urban land which can be monetised. According to this Times of India report, the “railways alone can monetise around 10,000 acres in urban centres, generating Rs 50,000 crore. Similarly, port trusts can monetize around one-fifth of 2.5 lakh acres they own.” The money raised will obviously go to the railways or port trusts, but the centre can benefit by cutting its own plan funding for the railways or ports if they can use revenues from land sales to pay for their own growth and investments.

Clearly, asset sales are the key to putting the fiscal situation back on track. But this can’t be the only route. The main task of fiscal consolidation has to be the capping of subsidies (especially oil, which has now become easier) and a shift in government expenditure towards infrastructure and other areas, which will act as growth and revenue accelerators.

But Jaitley clearly has some options. He does not have to stare at a completely bare cupboard. He can count on at least Rs 1,00,000 crore of spare cash coming in this year from asset sales this year.