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Knee-jerk economics

PSU buyback policy and the ONGC farce cloud the government’s credibility

Written by The Indian Express | Published: March 3, 2012 12:48:08 am

PSU buyback policy and the ONGC farce cloud the government’s credibility

The government is trying hard to redefine disinvestment in many different ways. The latest one is the cabinet’s decision on Monday allowing (or is it directing?) cash-rich public sector undertakings to buy back their own shares from the government. The result of another such disinvestment route —the first-ever auction or offer for sale of ONGC shares held by the government — could not have been more damning. It required another state-owned giant,Life Insurance Corporation,which got itself arm-twisted,to bail out the government. Priced at Rs 290 a share,representing a 7.5 per cent premium to the average three-month price,investors shunned the issue. Foreign institutional investors,who pumped in almost Rs 36,500 crore in January and February in the secondary markets,stayed clear of the issue. Rightly-priced primary market issues too did well in the recent past. What led to a debacle — the government calls it a success though — is the lack of clarity in policymaking and poor market intelligence.

At a time,when PSUs need to invest and grow,the government is asking them to put their money in their own stock. The eight PSUs shortlisted — Coal India,NMDC,Oil India,Bharat Electronics,Neyveli Lignite,MOIL,Balmer Lawrie and SJVNL — have reserves totaling Rs 55,580 crore. When corporate investments are not sluggish,the government should prod these PSUs to invest and help revive sentiments. Also,the idea of disinvestment is to broaden the shareholder base to induce more transparency and accountability in government-owned companies. During the year,the government had squeezed cash-rich PSUs (except oil PSUs) to shell out interim dividends and hopes to collect some Rs 8,000 crore. Such moves put to call the credibility of the government in the market.

What is disturbing is the way the government is raising funds just because it had fixed disinvestment receipts target at Rs 40,000 crore last February. It has overshot its borrowing programme and the market knows well that fiscal deficit estimates for the year will be breached. The government should rather train its energies to build consensus within for pursuing a genuine stake sale programme. The pretence of disinvestment eats into the government’s credibility of maintaining an arm’s length from its own profitable enterprises.

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