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Government stake sales continue to hit the stone wall
Feb 19, 2016

Substantial portion of India's government revenue has continued to depend on divestment of stakes in PSUs over the last few years. However, these divestment targets are hardly met. The government's plans to shore up funds via stake sale in the PSUs has been a flop show so far.

The reason? ...

The management of public sector undertakings (PSUs) has been abysmal. Many are wallowing in losses. Social obligations have taken a toll on their profits. Consequently, government faces problems trying to off shares in the PSUs in stock markets. Barring a few exceptions, all PSUs have very poor capital allocation. And in cases like Air India and MTNL, which have been loss making for more than a decade, the government continues to throw good taxpayer money after bad!

Failure to divest stakes in such PSUs leads to ballooning fiscal deficits, which in turn threatens to derail the nascent economic recovery.

Recently, in his interview to The Inner Circle newsletter of Bonner & Partners, Vivek Kaul talked about how the government continues to run an extensive network of loss making businesses. According to him, the biggest reason for the sad state of the PSUs is that the government wants them to survive. And whenever there are decisions to let go of the PSUs, there are protests.

The decisions on PSU disinvestment cannot always draw consensus or get timed according to market sentiments. The point is that if the government wants to push through disinvestments, it needs to be firm about it.

Data Source: Economic Times
*Divestment done till now

This Chart Of The Day was published in The 5 Minute WrapUp - 'Hours of Boredom Punctuated by Moments of Terror'

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