Cabinet approves stake sale in Hindustan Aeronautics

The union cabinet today approved a decision agreed to sell a 10-per cent stake in Hindustan Aeronautics Ltd (HAL), as the government continues to bank on disinvestment to shore up its sagging finances and reduce the budget deficit.

Hindustan Aeronautics is fully owned by the government. It is geared mainly towards making aircraft and allied equipment for the defence and paramilitary forces.

Addressing the media after the decision was taken by the cabinet committee on economic affairs (CCEA) at its meeting in New Delhi, finance minister P Chidambaram said the divestment will likely take place in the next financial year in the form of an initial public offering (IPO), and independent directors will be appointed on the company's board in accordance with regulations.

He did not clarify how much the government expects to earn from the stake sale, but reports suggest it hopes to raise around Rs2,500 crore.

The government owns the entire equity of the company. Administered entirely by the defence ministry, HAL has a paid up capital of Rs120.50 crore. It is listed as a 'Schedule-A Navratna' company, which implies that it is profitable. However, it has made no tangible contribution to India's air defence, as far as most observers can see.

Nonetheless the company has been given a number of projects for the armed forces, and the government plans to spend Rs20,000 crore in the next five years for modernising HAL.

The government plans to sell small amounts of equity in 15 state-run firms by the end of March next year, hoping to raise Rs30,000 crore from the sales to help plug the yawning gap between its revenue and its spending. However, analysts see little hope of this target being achieved, particularly as it is selling small stakes and would retain full control of the companies in which it hopes to disinvest.