The Govt finds a new way to destroy wealth!
In this issue:
» Corporate India faces crisis of confidence
» Indian IPOs fare terribly in 2011
» Are Americans taking away Indian jobs?
» Indians pay US$ 700 m for land administration services
» ...and more!
----------------------------- Have an enriching Saturday! -----------------------------
Can Europe find a solution to end the current economic crisis?
Will the new economic reforms drive the stock markets?
Are we paying a price for bad democracy?
Get answers for all such complex issues straight from Jawahir Mulraj.
Click here to sign up for J Mulraj's 'Straight From The Hip' e-letter! It's Free!
---------------------------------------------------------------------------------------
00:00 |
||
To be able to answer that, it is important to understand the nature of the surpluses that the PSUs are sitting on. The fact that PSUs are amongst the most inefficient lot in our country is no secret. A majority of state government PSUs are either bleeding or closed. Even the central PSUs have a hard time competing with private sector players. Then how is it that some PSUs have amassed such astounding profits?
The story goes thus- Before 1991, domestic mineral prices were quite below global prices on account of price controls. As such, PSU profits were humble. But then India's economy witnessed a paradigm shift. Price controls were lifted. At the same time, the global economic boom gave a fillip to commodity prices. These factors were the key to the fat surpluses that some big PSUs flaunt on their balance sheets. It is clear that this is not regular income, but windfall gains that may not repeat in the future.
Would it be wise, then, to use such one-off gains against regular expenditures? Remember, commodities like oil and minerals are limited and will exhaust some day. Several countries in Africa and Latin America burnt their fingers by going on a reckless spending spree with their commodity windfalls. On the other hand, Norway, Chile, and Gulf countries like Kuwait and Saudi Arabia realised this and conserved part of their windfall gains for the future through sovereign wealth funds. It is upto India to leapfrog by learning from the lessons of others, or learn through the hard way of self-experience.
Do you think PSU surpluses should be used to fix India's fiscal deficit? Share your comments with us or post your views on our Facebook page / Google+ page.
01:18 |
Chart of the day | |
Data source: Economic Times |
01:47 |
||
02:20 |
||
02:55 |
||
03:36 |
||
04:15 |
||
04:40 |
Today's Investing Mantra |
Click here to read our series on 'Lessons from Charlie Munger'
Today's Premium Edition.
Recent Articles
- All Good Things Come to an End... April 8, 2020
- Why your favourite e-letter won't reach you every week day.
- A Safe Stock to Lockdown Now April 2, 2020
- The market crashc has made strong, established brands attractive. Here's a stock to make the most of this opportunity...
- Sorry Warren Buffett, I'm Following This Man Instead of You in 2020 March 30, 2020
- This man warned of an impending market correction while everyone else was celebrating the renewed optimism in early 2020...
- China Had Its Brawn. It's Time for India's Brain March 23, 2020
- The post coronavirus economic boom won't be led by China.
Equitymaster requests your view! Post a comment on "The Govt finds a new way to destroy wealth!". Click here!
11 Responses to "The Govt finds a new way to destroy wealth!"
athmanathan
Dec 22, 2011A contrary view is not out of place. Let the government dip into the PSU cash as a one time measure but at the same time desist from passing Food Security Bill but use the PSU funds to bridge the fiscal deficit.
madhav k.apte
Dec 21, 2011Gennuine fear is that indian rupee is on down slide like zimbabve $ due in addition to deficits, very huge piles of spurious pirated indian currency notes smuggled[it is already most favoured nation[!] for this. Idea of manageable low inflation is ridiculous due to its compounding effect,ideal being 0 or - rate only but no economist seems to dare to talk over this.
Vijay
Dec 21, 2011The wake up call to the current leadership to take immediate concrete steps to bring the economic growth on rail, is of no use. It seems that there are vested interests which are hell bent on destroying India as a country and above all its economy. Its not that those who matter do not have the eyes, brains, vision. They simply lack the national spirit or to say their spirit has been marred by certain vested interests. Even the RBI seems to have closed its mind. We only hope that the people of India, especially the downtrodden see where their true long term benefits lie and do not elect inept and person with stale and selfish mind set who seem to be cutting the same branch on which they are sitting. I for one, personally have no hope from the current leadership of this GREAT nation.
Dr.D.Veeranna
Dec 21, 2011Definitely Government should not use the funds of PSUs for financing deficit. Govt. should consider the interest of minority shareholders.
Biraja Shankar Hota
Dec 21, 2011To meet the fiscal deficit target of 4.6% of GDP the Govt. should over-work for tax-revenue collection,unearth black money, check massive scale corruption,reduce govt. expenditure and finally disinvest holdings in the PSU. It seems, govt. will do nothing right but resort to the the wrong fiscal policy to transfer PSU surplus to the budget. The market capitalization of such is thoroughly deplorable in present economic scenario and if they are dried off their liquid resources they will face a situation the
Govt. is now facing.After all, what for this transfer of surplus of the PSUs? To win election through populist measures like those are inveted at the moment?
sunilkumar tejwani
Dec 21, 2011it is absolutely absurd on the part of the government even to think about using PSU companies'funds for meeting wasteful expenditure, instead these funds must be used for further investment into the related areas in which the concerned PSU companies are operating. This will ensure their long term growth and sustainability of their business and create shareholder value. This will benefit all in the long run, for example the government can set the prices at which the PSU mining companies should sell their produce,to keep inflation under check whenever the mineral commodities prices skyrocket in the global markets especially due to rampant speculation.
RJayaraman
Dec 21, 2011Governments wasteful expenditure, inability to be frugal,profligate behaviour of ministers, very heavy salaries and perquisites of Parliamentatarians for the third rate job they do only for a small part of the year, endless corruption high salaries of Govrnment employees with out any productivity linkage,etc have led to the various financial problems. There are several PSUs that are a basket case, while a few PSUs have some surplus money which belongs to shareholders. Now the evil eyes have fallen on these reserves and the Government of India wants to plunder it.Jayalalitha is giving free trips to Jerusalem while there is poverty all around and backward communities and Adivasis have no food to eat.Government Of India is financing Haj Pilgrimage spending millions of Dollars trying to appease minorities. This money can be well spent on education of the poor and the downtrodden. A time may come soon when Tirupati temple and Anantha Padmanabha Swami Temple in Trivandrum may also be plundered to bridge Government deficit. God save the country.
Amit Sengupta
Dec 21, 2011First of all this set of ministers must be told emphatically that they represent the people and own niether the Govt nor its wealth. Ask even the most naive investor - sure that all will shout 'nonsense - this move must be abandoned'. Govt needs money - for what? - for food security - not more than 20% of which will actually reach the real poor - and no one will ever know who all benefitted and how. When will these politicians plan out a 'job for all' & scrap 'food for all'.
Pankesh Sethi
Dec 21, 2011Government has surely found a new way to destroy wealth or we can say to use the same in its interests.Government is gazing at pile of cash to fulfill 2 objectives:
- 1st one is regarding coming elections in 5 states;so government cleared the food subsidy bill to cash in vote bank..
- n second one,government is trying to reach as close as possible to its target of fiscal deficit of 4.6% of GDP.
Hopefully Government will think about India as a whole..
prem prakash
Dec 29, 2011Why you always opposing subsidy given to food, fertiliser,power and interest rate hiking which benefits targeted poor and middle income group people. Don't you know that industrialist swindling money in the name of bank loan, looting natural resourses, spoiling environment, miscl. subsidies.
afterall PSU money were got from the sale of natural resources which belongs to country and that should go to government for the benefit of country and not for the fradulent and greedy stock market investors.