Plagued by poor investor appetite for state-owned assets, the government is likely to scale back its revenue targets from planned divestments, following already huge shortfalls from planned asset sales in recent years.
People familiar with the matter say New Delhi is now setting more "realistic" targets for the fiscal year ending March 2017 having raised less then one fifth of the 685 billion rupees it had projected in 2015/16, the sixth straight year it will have missed the target.
With slowing nominal GDP growth threatening tax estimates, Prime Minister Narendra Modi's government is expected to rely more on divestment proceeds to keep the fiscal deficit in check as it seeks to fix public finances.
The government expects the shortfall could be as much as 500 billion rupees for 2015/16, the sources said, noting that none of the proposed big divestments are likely before April, including a $3 billion stake sale in Coal India.
To prepare assets for sale, the government plans to bolster the financials of state-owned behemoths such as Coal India and power producer NTPC, said the sources.
"Some of these (state) companies are large and have strong fundamentals, but their legacy and performance issues need to be addressed first," said one of the sources. "That will improve their valuations and give a lot of confidence to investors."
The sources did not want to be named as the matter is not public. A top bureaucrat at the Department of Disinvesment, which handles the asset sale programme, did not immediately respond to a request for comment.
In its last budget, the government estimated raising 550 billion rupees and 500 billion rupees through stake sales over the next two fiscal years, respectively, but these projections are now set to be reviewed.
"We should go by past experiences and aim for a modest but realistic target," a senior finance ministry official said, adding that the next fiscal year's target should not be more than 400 billion rupees.
Almost all of India's recent divestment deals saw little interest from institutional investors, domestic or foreign, due to concerns about corporate governance and growth prospects of the companies.
Many such deals were ultimately rescued by state-owned Life Insurance Corporation of India (LIC), the country's largest equity investor. For example, LIC bought 86 per cent of shares in state-run Indian Oil Corp in August, salvaging the $1.4 billion share sale.
To boost investor appetite, New Delhi is looking to revive the performance of some blue chip companies that could raise more than a billion dollar each through share sales, the sources said.
Coal India's biggest technology overhaul in four decades to reduce theft and improve efficiency is one such effort. The firm is also likely to hire an independent consultant to advise it on environmental issues, two of the sources said.
The government is also pushing NTPC, which mainly focuses on coal power, to invest more in Indian renewable energy projects to boost growth prospects, the sources said.
Analysts, however, say none of these measures will lead to short-term earnings growth with investor decisions still very much dependent on the broader market outlook.