But if recent reports are to be believed, it looks three of our industries -- banking, refining, both upstream and downstream, telecom -- are all headed for a cat's cradle of cross-shareholdings because the Government is desperate in garnering resources. Since time will prove to be a constraint for public-sector enterprises buying back their equity it seems that there is a general consensus that perhaps a cross-holding structure might be answer to the government problems of burgeoning fiscal deficit.

Nevertheless, this objective of helping the deficit is sought to be disguised by the enunciation of a higher, nobler objective--that cross-shareholdings will help in the formation of bigger and better companies which can then take on the world. Unfortunately,however, this fig leaf is almost transparent. The simple fact is that the Government is the majority shareholder in all these enterprises. If the idea is to have alliances between the companies, for example an alliance between ONGC and Indian Oil, the Centre can easily ensure that. Cross-shareholdings are not necessary.

In addition, the statements coming out do not give the slightest hint about whether the Government is bothered about the investment plans of PSUs. If at the fag end of the year, the enterprises are forced to hand over their funds to the Government, their investment schedules could have to re-looked. This has grave implications for the economy, which is already starved of funds for investment.

For example, IOC and ONGC have planned capital expenditure of more than Rs 20,000 crore each for the next four years. This means that approximately Rs 4,000 crore of capex every year. Approximately 80 percent of the capex by IOC and ONGC is met by those two through internal accurals. Now if Governmentforces them to go either for buyback or pick up stake in each other then some of these investment plans will be affected. This is not to say that the companies cannot borrow funds from the market.

It is a well-known fact that the rise in fiscal defict is due to the rise in non-plan expenditure, and plans such as buyback and cross-shareholdings could well delay the much-needed investments in the core sector. This in turn will delay the possible revival of economy.

In addition, the sum of money is quite high both from ONGC's as well as IOC's point of view. Based on the present market prices, buyback of 10 per cent stake in IOC and ONGC, the companies will have to shell out Rs 1,950 crore and Rs 2,850 crore. In case the companies have to swap their equities the sum of money will be similar, the only difference being that the sums to be paid to government will be interchanged. Whatever be the method the cash flow will be adversely effected.

The case of MTNL and VSNL is different as both of them requireless money for buyback or equity swap. This is because the government's stake in MTNL is already down to 57 per cent. Hence, at the most there will be a swap of 5 per cent stake with each other, or the companies will buy 5 per cent stake from the Government. The monies involved out here turns out to Rs 380 crore for MTNL and Rs 530 crore for VSNL.

Both of them have comfortable cash reserves and their planned capex of each year is only Rs 1,000 crore and, hence, these companies may not see an adverse cash position as that of oil majors. But there are serious doubts as to the effects of such activities on the bottomline of companies.

At an optimistic level we can assume that all these cash-rich companies declare 100 per cent dividend. Still the returns will be less than 5 per cent for all PSU shares. A better investment for extra returns could be managed by bank deposits.

Further, the Government's argument that cross-holdings will lead to concentration and the resultant synergy will help companies competeglobally does not hold water. What matters is not size but return on capital employed, and it is good companies which become big, not the other way around. Clearly, therefore, all that the Government is interested in is altering its year-end figures. However, there is a logic to the madness. If the Centre can fudge its figures, it may, hopefully help reassure investors, especially foreign ones, about the state of its finances. That seems to be the pious hope.