From ONGC buying GSPC’s fields and HPCL, to LIC buying IDBI Bank, rising PSU power seems to be the norm
The steady rise in FDI inflows, at $62 billion in FY18, suggests India is a more attractive destination than before, but the reality is more nuanced. All inflows have to be seen in relation to how large the economy is and, while FDI peaked at 3.5% of GDP in FY08, FY18 inflows were a smaller 2.4%, lower than even FY17’s 2.6%. That is not surprising, given how investor sentiment has been hit by a combination of retrospective tax cases and high transfer-pricing orders, big investors like Cairn Energy continue to be harassed by having their assets seized, both telcos and oil/gas majors are bearing the brunt of unfriendly policies, seed-tech giant Monsanto has been hounded out, DoCoMo had a hard time even getting half its original investments back, etc. Perhaps why a large part of the FDI inflows are in new areas like e-commerce, where regulatory arbitrage is the driving force—while the law doesn’t allow FDI in firms selling to retail customers, investments are being made through the fiction called the ‘marketplace’; so getting into the market before this loophole is plugged is critical.
There are also, as our page 1 story shows, issues of whether the counting of FDI is kosher. KS Chalapati Rao and Biswajit Dhar at the Institute for Studies in Industrial Development have examined the FDI statistics in detail and come up with some startling conclusions. Serene Senior Living Pvt Limited, they find, was reported to have received $2.3 billion during Oct-Dec 2015, but its local regulatory filings show no such inflows; indeed, it is difficult to see how a company with an authorized capital of Rs 5 crore could absorb Rs 15,000 crore of inflows. DoCoMo was supposed to have invested $1.5 billion in July-Sep 2016, a period in which it was trying to exit India; the researchers found the investments were made in 2009-11 but were recorded in FY17 FDI data …
In such a situation, UTI offered the perfect solution to boosting foreign-investor sentiment. In FY11, US investor T Rowe Price (TRP) was sold 26% of UTI as part of the government’s aim to professionalise the mutual fund that was, till then, fully owned by four PSUs—LIC, SBI, PNB and BoB. Despite Sebi rules stating that the PSUs had to lower their stake to below 10% each since they ran their own mutual funds, however, they were trying to take over UTI. They were even preventing an extension for UTI’s managing director, critical at a time when preparations for a large IPO were going on. Had the finance ministry directed the PSUs to fall in line, it would have boosted foreign-investor confidence and it would also have ensured Sebi rules were complied with. Since this was not done, an investor who waited patiently for seven years to see UTI being run like a professional company—in FY12, TRP fobbed off a serious attempt by the finance ministry to install its nominee as CMD of UTI—has now gone to court to ask that Sebi be asked to enforce its own rules! If the court case doesn’t get resolved immediately, with UTI headless, India’s fourth-largest mutual fund—with Rs 3.6 lakh crore of corpus—is at risk, and may just get taken over by one of the four PSU investors for a song. While that would be unfortunate, it is in keeping with the larger PSU-isation of the Indian economy over the past year. Instead of the Gujarat PSU GSPC selling its KG Basin fields to a private firm last year, ONGC was asked to take them over; indeed, ONGC was also asked to buy HPCL as an alternative to privatisation. And after buying a stake in several troubled PSU banks, LIC bought a 51% stake in IDBI Bank when the government couldn’t find a private buyer. UTI could then be the latest in this growing PSU-isation of the economy. If foreign-investor sentiment is a casualty, so be it seems to be the official view.