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PSUs set to tap capital markets
Fri, 18 May Pre-Open

Fiscal deficit at 5.1% of GDP and a heavy government debt burden remain India's key worries. A further rise in expenditure will reduce the government's elbow room to borrow and spend its way out of a crisis. In order to raise revenues, the government embarked upon an ambitious disinvestment target of Rs 400 bn last year. But that plan to raise funds through disinvestments in PSUs fell on the face of the government despite of a quick run-up to sell 5% stake in Oil and Natural Gas Corporation Limited (ONGC). It managed to raise only Rs 220 bn last year. The government has lowered its disinvestment target this year to Rs 300 bn.

In order to kick start the disinvestment program again, the Finance Ministry has sought the help of financial advisers and senior bureaucrats posted in various ministries to get Central Public Sector Enterprises (CPSEs) listed on bourses. The Ministry has sent an office memorandum (OM) to all the financial advisers in this regard. Many financial advisers are also placed on the boards of the CPSEs belonging to their ministries. At present there are 220 CPSEs in operation. 158 are profit making. And only 48 are listed on stock exchanges. Listing these CPSEs on stock exchanges would enable them to better tap the capital market for capital expenditure requirements instead of depending on government finances. Some of the profit making CPSE includes Airport Authority of India (AAI), HUDCO, Rashtriya Ispat Nigam Limited (RINL), Pawan Hans Helicopter. This sends a clear signal to CPSEs to start raising money on their own and not depend on the government.

However the government should have a clear cut policy towards disinvestment. It should have an action plan in place to reduce fiscal deficit. The Indian economy is reeling from a wave of pessimism. In a few years, we have gone from universal optimism about India to universal pessimism. The misrule of recent years has persuaded private and foreign investors that Indian governance cannot be trusted. The fracas about disinvestment and the flip-flop over policies have done further damage. These events send out a signal to private and foreign investors that economic policy formulation and execution in India is suspect. This will further damage the outlook for investment.

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