Hit by the 4.4% GDP tremors

Written by Santosh Tiwari | Updated: Sep 3 2013, 08:16am hrs
For the government machinery fighting the rupees slide, a GDP growth of 4.4% during April-June this yearthe lowest in the last 16 quartersis an ominous sign demanding immediate measures for stepping up capital expenditure and serious deliberations on improving industry sentiments for perking up long-term investments.

It is in this backdrop that two meetings, scheduled to be held in the coming fortnight at the top level of the government, hold immense significance.

The first one, on September 9, has been called by Pulok Chaterji, the principal secretary to the Prime Minister, to review capex plans of the central public sector enterprises (CPSEs).

The second one, on September 17, has been called by cabinet secretary Ajit Kumar Seth, to discuss the recommendations of the Ashok Chawla committee on allocation of natural resources, submitted to the government in May 2011. Considering the damage that the mismanagement of the allocation of natural resources has done to the investment milieu in the UPA regime, sitting on the Chawla panel suggestions for over two years has been a bad idea. Given this setting, any indication by the government on making the process for allotment and handling of coal mines or oil and gas wells industry-friendly would at least lift the sagging industry sentiments.

First, lets talk about the CPSE capex plans that can infuse the much-needed quick investments. This is critical as the private sectors appetite for investment is badly battered and it will take considerable amount of both time and effort to bring it back. So, the CPSE capital expenditure can at least keep the ball rolling.

The CPSE capex and investment plans are being monitored by the PMO since FY13. The idea, obviously, is to utilise the cash-surpluses available with the former to push economic growth. The PMO had identified 17 CPSEs with substantial cash surpluses and had fixed R1,41,389 crore as the investment targetthe achievement so far, it said, is of R1,11,913 crore, about 80% of the target.

The outstanding performers, as listed by the PMO, were Neyveli Lignite Corp (108%), Power Grid (100%), Indian Oil (97%), NTPC (94%), ONGC (89%), Oil India Ltd (83%), Coal India (76%) and NHPC (81%), with a total of R90,000 crore of capex. For the current financial year, 7 CPSEs have been added to the list including RINL and Nuclear Power Corp. The target for FY14 CPSE capex is R1,41,912 crore. A review of the progress made in the first five months now should help tighten belts and push the public sector companies towards achieving their respective targets.

Though there is hardly anything that the government can do beyond this in the short-run, to drive investments and spur growth in the immediate run, even a delayed look at the Chawla panel recommendations is a good idea. The lack of transparency in the allocation of natural resources and their handling post-allocation have been two of the main reasons for the investment climate in the country getting cagey and confused. The adoption of an open, transparent and competitive mechanism for the allocation of coal, oil and gas, and other resources, as suggested by the paneleven at the fag end of the term of the UPA governmentwould help regain lost ground to a certain extent.

Indeed, it is hard to understand why the government has not been able to implement competitive bidding for allocating coal blocks and the open acreage licensing policy for oil and gas blocks in real earnestness. It is time that these measures got expedited.

Apart from these two meetings, this month will also see the finance ministry engaging in deliberations on the progress of the DMIC project, the status of viability gap funding (VGF) in the infrastructure projects and also the World Bank-funded infrastructure projects.

So, while the rupee and gold continue to pinch, the focus of policymakers seems to be shifting towards spurring investment, and rightly so.

Coming to gold, the finance ministry has discussed some options for sprucing up the existing gold deposit schemes, which have failed to attract people mainly because of two reasonspeople dont want to part with their gold possessions, and the returns in these schemes are hardly attractive.

While nothing can be done to remedy the first situation, the ministry has discussed a scheme under which increasing the interest rate on 7-year gold deposits from the current 0.75-1% to 3% could attract depositors. Jewellers could then be allowed to take the gold from banks by paying a 6% interest; this will leave 2.5% with the banks themselves and 0.5% to be shared as commission with the intermediaries. The ministry favours this scheme (likely to be launched by 2-3 public sector banks as a pilot project) which can then be scaled into a full-fledged product. The entire process, at some point of time, can then be given an institutional backing by, say, 5 banks getting together to form a Bullion Corporation. The creation of a credible information platform by a private entity, like TCS, which can be utilised by all the stakeholders, is also a part of the plan. Though the government will not get involved directly, the finance ministry will be pushing vigorously for refurbishing gold-deposit schemes.

The onus of checking the fall of the rupee has been firmly put on coordinated action by the BRICS countries on overseas speculative tradingthis could check the contagion impact. Given the backdrop, it would be interesting to watch what Prime Minister Manmohan Singh says in St Petersburg, at the G20 leaders summit this week.