|»5 Minute Wrap Up by Equitymaster|
On This Day - 12 JULY 2010
Will anybody be answerable for these Rs 293 bn?
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It has been 3 years since the eleventh plan period took off. And it has been nearly a year since the road building target was laid. Neither has offered us much reason to cheer about. Be it building roads or power plants India's reputation for poor execution rate has remained intact. While lack of funds from private players has been a key reason, there are others too. For instance disputes over land acquisition. But the government believes that raising funds from retail investors could be a viable solution to the former.
With this in mind, it proposed issuing tax free bonds with a 10-year lock in period. If successful, these infrastructure bonds may attract investment to the tune of US$ 6.5 bn (approx. Rs 293 bn) from 35 m taxpayers. A respectable sum indeed! However, the question that begs a reply is whether the government's onus ends with raising the funds? The taxes that we pay are anyways meant to build and improve the economy's infrastructure. So there is no novelty in raising additional funds. But will there be any accountability for the usage of these funds? Or will this end up being another futile exercise? Had it been only paucity of funds, India's forex reserves could have been an equally viable option.
The chairman of the Prime Minister's Economic Advisory Council believes we had reached a point where some action on petroleum products had become essential. In fact, he believes raising kerosene prices was an even bolder move than raising petrol and diesel prices. We agree. Such matters are politically sensitive. Hence, we remain skeptical whether the government would be able to withstand the political pressure in the days ahead. Even more importantly, will it be able to pass on the burden if crude oil prices were to surge?
It is now considering selling off some of its stake in public sector firms through auctions. Bidders for these stakes will be large institutional investors. Auctioning stakes in actively traded shares such as SAIL with a 10-15% public float may prove beneficial. Through this method, the government only has to set a minimum price, and the bidders do the entire diligence for making bids. The target for raising money through divestment is Rs 400 bn for this fiscal. If it goes through the action route, the government may even overshoot this target. Looks like the government is being advised by some well placed investment bankers who always prefer the QIP route!
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