The telling impression from the meeting of the finance minister with the chief executives of public sector companies on Wednesday was a mutual recognition that getting investment going will be a long haul for the economy.
From September 2011 till now the cabinet committee on economic affairs has taken just four investment decisions exceeding Rs 1,000 crore,for public sector units. Two of these are the decision to recapitalise Air India (a disastrous one) and the approval for setting up a petro-chemical complex in Tamil Nadu. For the top public sector companies to have run up huge cash reserves of more than Rs 1,80,000 crore in this period then,is not surprising at all.
RBI data shows fresh investments in the economy have dipped 41 per cent in 2011-12 across large sectors including power,metal,telecom and cement. The bank has also noted that the pipeline of capital expenditure planned for 2012-13 aggregates to an even lower Rs 2,073 billion. Even if companies adhere to their investment plans,the envisaged investment by the private corporate sector in 2012-13 is expected to be significantly lower than that in the previous year.
There are two conclusions going ahead from here. First,the weakness in the investment climate is going to hurt the growth rate of the economy through next fiscal too. Second,if the public sector companies are to act as a counterpoise then they have to be given the space to develop credible investment plans than just push money into visible but potentially disastrous projects. Since all of them are listed entities shareholders of these companies will be hurt if they rush into investment plans that are developed in a hurry.
Also,there are policy issues which need to be sorted out before asking them to spend. Coal India for instance has a cash reserve of Rs 40,000 crore but bids for coal blocks in the upcoming auction will cost quite a bit. And despite the diesel price correction on Thursday night,the subsidy bill of the government hangs heavy on ONGC. The net reserves of these PSUs are therefore not as fat as what appears at first sight.