|»5 Minute Wrap Up by Equitymaster|
On This Day - 11 APRIL 2012
Isn't this wealth destruction of another kind?
In this issue:
----------------------- "An excellent analysis and narration on the present situation" -----------------------
In recent days, the government's actions against profitable PSUs have redefined wealth destruction altogether! True that the threat from rising oil prices has never impacted the Indian economy as sharply as it is now. Right from currency deprecation to inflation to high interest rates to retarded GDP growth to fiscal deficit. Every economic variable has been adversely hit. Hence the government has turned to the few cash cows in its stable to bail itself out from distress. The profitable or cash rich public sector companies were initially supposed to raise funds for the government through public offerings. However, volatile markets led to the debacle of the disinvestment plans. This forced the government to milk the PSU assets indirectly. Getting Coal India to pay for imported coal or Indraprastha Gas to supply fuel at rock bottom rates are part of the tactics.
No doubt better supplies of coal and natural gas can sort out India's energy needs to a great extent. That can also ease inflation and boost growth rates. But draining PSUs of their cash and other resources is certainly not the ideal mode to achieve this goal. Such random policies also show the lacuna in policy making. The government has realized the importance of investments in discovery of energy resources very late. It is a pity that more wealth destruction in profitable PSUs will cover the government's ineptitude.
At a time when banks are struggling to keep their asset quality in order, restructuring the books of failing corporations could end up being disastrous. If you feel the same way as we do, then raise your voice to Ban Bailouts. Remember, every vote counts!
Income inequality brings with it considerable perils. For one it can be a harbinger of social unrest of the kind we have been witnessing in the Arab world. It also leads to more pressure on the government to kowtow to populist polices many of which tend to be ineffective. All these then serve to malign growth itself. That is why Asian governments need to focus more on productive areas. These include education, healthcare, infrastructure and creation of quality jobs if growth has to be all encompassing. However, with Indian government finances in a state of disarray we wonder when the government will get its act together in this regard.
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