Rangarajan against PSUs holding each other's shares

Rangarajan against PSUs holding each other's shares

Projects inflow of FDI in 2011-12 at $20.6 b against $7.7 b in 2010-11

Expressing its opposition to the proposal of one PSU (public sector units) buying shares of another to help government raise funds, Prime Minister’s Economic Advisory Council (PMEAC), on Wednesday, said it was not desirable as it would reduce investible resources of the buying company.

“The proposal that was mooted to raise this (Rs 40,000 crore disinvestment) revenue by disinvesting the shares of public enterprises to other cash rich public enterprises was not a desirable option,” Chairman C Rangarajan said.

Unable to raise funds through sale of equity in public sector undertakings because of volatile market conditions, the finance ministry had mooted innovative ways, including cross holding by PSUs, to achieve Rs 40,000 crore target. Under the cross-holding route, shares of a PSU was to be sold to other cash-rich firms of the government.

He also expressed hope that India’s economy growth would be around 7.1 per cent for this fiscal, a tad above official estimates of sub seven per cent, but said the headwinds from global economic certainty remained a concern.

 Presenting the review of the economy for 2011-12, he, however, said that inflationary pressure would continue to ease through 2012-13 and will remain around 5-6 per cent for the year. He said the economy was likely to grow in the range of 7.5 to 8 per cent in 2012-13.

 Rangarajan said an expected overshoot in fiscal deficit over the budgeted 4.6 per cent of gross domestic product is a matter of concern and the government must lay out a roadmap for fiscal consolidation.  It must reduce subsidies and has room to raise some indirect tax rates to boost revenue, he said. The PMEAC projected a slightly higher growth for agriculture and construction in the current year than the government’s advanced estimates of 2.5 per cent and 4.8 per cent, respectively.

 It said the mining and quarrying sector had shown particular weakness this year. This was due to a combination of weak coal output growth which was negative in four months of the year, a sharp decline in natural gas production in the KG-D6 fields and negative growth in crude oil output in the third quarter of the year.

The report also raised alarm about the weakening of India’s current account deficit, averaging 3.6 per cent of the GDP in the first half of this financial year. It, however, said that the situation will improve in the fourth quarter.  According to PMEAC, capital flows in the form of Foreign Direct Investment (FDI) in the current fiscal would be $20.6 billion, against $7.7 billion in the previous fiscal. However, FII investment is likely to decline to $4.9 billion, from $30.8 billion in 2010-11.