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Economy: Politically driven? - Views on News from Equitymaster
 
 
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  • Jul 11, 2006

    Economy: Politically driven?

    If the latest stance of the government with respect to its 'need to take a re-look' at the disinvestment plans of Neyveli Lignite and Nalco is considered, one might be forced to believe that there is something seriously wrong in the way the 'India story' is panning out. In fact, the politicians have once again emerged as the most lethal weapon that can destroy the dreams of a billion Indians - whether they are students, businessmen, or investors.

    When the government had decided earlier on reducing its stake in the Southern power generation and lignite major, Neyveli Lignite, it was simply to reinstate interest in the domestic IPO market (the government would have still held an over 80% stake in the company after the stake sale), where sentiment had gone sour after the recent correction. However, such has been the mood on the streets that now, the decision to keep on hold stake sales in the state corporations, could further dampen sentiment in an already volatile market. This decision from the government (and many more of this nature) have raised apprehensions regarding the sustenance of the India story which has been the key selling point for Indian equities to foreign shareholders during the past three years.

    It is not that disinvestment is a major reform or that without disinvestment, India will lose its way. We are concerned with the government's inability to visualize what is required to make India a better place to live in for the 'aam aadmi' ten to twenty years down the line.

    Considering the situation that the UPA government faces due to severe pressure from its allies (Tamil Nadu based DMK had threatened to pull out of the coalition had the UPA government gone ahead with its disinvestment plans), we believe that disinvestment is not likely to figure anytime soon in the reform agenda. However, the big question now is will the government be able to act on other economic policies, specifically with respect to banking and labour reforms? Or will these policy decisions be relegated to 'later date re-look' as well? What the investment commission is doing is anybody's guess!

    This development (or mis-development, if you may so call), has put a spanner in the works of the government's plan to mop up Rs 100 bn from stake sales in other companies like Power Finance Corporation, Hindustan Zinc and National Mineral Development Corporation - the funds which would have otherwise gone towards funding growth and development schemes in rural areas and also for the revival of ailing public sector companies.

    For the moment, Dr. Manmohan Singh's dream-team may find the path to reforms a very slippery one. Ironically, his government can still stay in power for the next three years simply by doing nothing! And if it plans to do something, there will always be either the Left, or other allies, or the opposition disrupting proceedings. And you, as an investor in the India growth story have a tough task on hand - to protect yourself from slipping, all the time in the next three years, till we have another (or the same) set of mis-governing politicians at the helm. Is there a way out?

     

     

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