"The government has made up its mind to drop plans for global depository receipts (GDRs) as well as private placements of shares of all the five PSUs slated to take the disinvestment route this year. All issues will be hawked to retail investors in the domestic equity market," sources in the finance ministry said.

The decision to drop GDRs was taken well before the global rating agency Standard & Poor's latest round of downgrading of India, sources pointed out.

The ministry is keen on adopting the British Telecom model while disinvesting the PSU shares. In other words, the government is ready to sell the PSU shares at a discount to retail investors. Incidentally, finance secretary Vijay Kelkar also recommended the British Telecom modelin his now-famous special purpose vehicle (SPV) paper.

According to sources, chiefs of banks and financial institutions want the centre to drop the plan for GDRs and private placements of stakes in the domestic market through the joint book-building exercise. "Senior bankers want the government to sell PSU shares to retail investors even if that calls for a discount in share pricing. Banks and institutions collectively are ready to underwrite the entire disinvestment programme," sources said.

When contacted, State Bank of India chairman MS Verma said he does not favour the idea of floating GDRs. "We want the government to follow the British Telecom model and sell PSU shares to retail investors. Even if the pricing is not very high, the shares should be sold to the public.... I do not see any problem for the disinvestment programme as banks and institutions are ready to underwrite the issues," Verma said.

"We are in favour of offloading the government's stake to the public through retail issues and notto institutions through the private placement route. We must take this opportunity to prop up the market sentiment. If the government decides to follow the retail issue path, the market is bound to get a big boost," said the chief of an institution who does not want to be quoted.

Defending his decision to oppose the GDR route, Verma said: "Foreign institutional investors traditionally hammer down the price whenever an Indian entity enters the global market. This is bound to happen. The best possible route should be selling it to retail domestic investors. Even if the shares are offered at a discount, no questions will be asked. After all, they are being offered to the Indian public."

The disinvestment programme will be kicked off by the Concor domestic issue. The centre is planning to sell about nine million Concor shares at a premium. The original proposal was to divest 6-million shares of the company through GDRs and 2-4 million in the domestic market.

The cabinet committee on disinvesment had givenits nod to go ahead with the disinvestment of the government stake in Concor on Wednesday after the global coordinator for the issue ruled out the possibility of floating the GDRs.

The centre will sell shares of Indian Oil Corporation (IOC), Videsh Sanchar Nigam Ltd (VSNL), Gas Authority of India Ltd (GAIL) and Mahanagar Telephone Nigam Ltd (MTNL) by March 1999.