Another govt stimulus plan: PSUs told to spend more

The 2008 stimulus has not been fully withdrawn as finance minister Pranab Mukherjee chose not to hike excise duty rates to pre-2008 levels.

NEW DELHI: Amid fears of an economic slowdown, the government has finalized a public sector-led spending "stimulus" with 17 state-owned companies asked to step up investment beyond the Rs 1.76 lakh crore projected by them for the next financial year.

Besides this, they have been asked to diversify into related areas if sufficient investment options are not available in sectors that they operate in.

Government officials told TOI the decision to push PSUs to invest was taken at a meeting convened by Pulok Chatterjee, principal secretary to the Prime Minister, last week.

The companies committed to domestic investment of over Rs 1.4 lakh crore, while overseas acquisitions are expected to be around Rs 35,000 crore.

In 2008, the government had slashed taxes and stepped up expenditure to counter the impact of the global financial meltdown. The stimulus has not been fully withdrawn as finance minister Pranab Mukherjee chose not to hike excise duty rates to pre-2008 levels. Also, with fiscal deficit remaining high, the government cannot go on a spending spree.

Coal India, for instance, has cash and bank balance of almost Rs 44,000 crore, but has projected investment of Rs 4,275 crore in 2012-13. If overseas acquisitions materialize, this could rise to Rs 6,000 crore. In fact, the company has been asked to look at investing in other sectors - including in roads, railways, waterways and power projects - if it cannot find sufficient options to invest in coal. Similarly, Container Corporation (Concor) has been asked to prepare a more aggressive plan as it has been conservative in its investments.

Further, Bharat Electronics was identified as a possible candidate to buy back its shares as it has investment plan of around Rs 1,700, while it has cash and bank balance of Rs 4,500 crore. The move to seek higher investment from PSUs comes at a time when the finance ministry is pushing for a buyback of shares by companies.

The move being pushed by the disinvestment department is aimed at helping the government reach its Rs 40,000 crore target.

While the PMO's initiative is expected to boost investment, economists said other steps may also be required. "Measures to utilise unproductive cash on the balance sheets of companies is a very good step. But it will only work if the government simultaneously works on improvements in land acquisition, environmental clearances and coal linkages," Standard Chartered Bank economist Samiran Chakrabarty said.

"The investment boom of the last decade was led by the private sector. While it is important to boost government investment, it is equally critical to improve the investment climate and encourage private investment," added DK Joshi, chief economist at ratings agency Crisil.