Government raises $1B from stake sale in ITC, can use it in populist schemes

The government-owned Specified Undertaking of Unit Trust of India (SUUTI) has sold a small stake in ITC, raising close to Rs 6,700 crore. The stake was bought by the Life Insurance Corporation of India. Sources say that this stake sale may be used in various government programmes announced in the budget. This is a significant move in light of this year’s budget’s forecasted outlay of Rs 48,000 crore for the MGNREGA scheme, which guarantees a job and payment of money on a weekly basis to the poor.

The central government can also use the money to shore up and upgrade the core banking systems of co-operative banks, given that in the budget, a sum of Rs 1,900 crore was announced for this purpose. Last year, the government raised more than Rs 30,000 crore through such strategic stake sales, the most notable being a stake sale in L&T, which fetched Rs 3,100 crore.

The government has ambitious plans to raise money. It is predicted that in the coming fiscal, the government hopes to rake in at least Rs 42,000 crore or more. It was announced in the budget that several government-owned enterprises would be taken public this year. The entity that would rake in the most money would be the IRCTC, which is valued at around Rs 1.2 lakh crore. It would be India’s largest IPO if it goes on to list in the fiscal year 2017-18.

Clearly, the BJP government hopes to make an impact by raising money from ventures in which the government owns a stake. It has identified 22 PSUs that will rake in the money for government programmes. The big ones that could bring in the money are companies like the Container Corporation of India.

With this stake sale, ITC’s shares were up by 0.5 percent in the market. The company, which sees Rs 53,000 crore in revenues, also saw the stepping down of its Managing Director YC Deveshwar, who ran ITC for 21 years.