Prime Minister Manmohan Singh is trying to unlock some of the cash industry is sitting on to revive investment, which has declined to 32.8% of the gross domestic product (GDP) in the first quarter of 2012-13 from a peak of 38.1% in 2007-08. According to one estimate, Indian companies are holding Rs. 9.3 lakh crore, or 10% of the GDP at current market prices, in cash. Public sector undertakings are sitting on Rs. 2.5 lakh crore. This money is either awaiting deployment once credit conditions ease or is slated for investment but held up by clearances from government agencies. Finance minister P Chidambaram is trying to contain expenditure that has crowded out private investment, but the government can employ more direct methods with the companies it owns. The idea is for public sector undertakings (PSU) to spearhead the resurgence of investment across the broader economy.
Mr Singh’s meeting on Tuesday with bosses of the biggest PSUs served the purpose of getting each side’s message across. As their owner, the government wants these companies to invest their surpluses in this financial year or pay it special dividends to bring down the fiscal deficit. The PSUs, on their part, managed to get the government to set up a high-powered panel to look into the reasons that are holding back their investments. Among them are delays over land acquisition, environmental clearance, greater financial freedom for PSU boards and supply concerns like the coal shortage. The government is in the process of setting up a National Investment Board that will audit approvals pending in the Cabinet and a special cell in the Prime Minister’s Office is monitoring coal linkages for power companies. A periodic review of PSU investments might plug some delays in key infrastructure projects.
Amid hesitant signs of recovery in industrial output data, a big push for infrastructure spending now through the public sector could drum up demand and hasten India’s return to 8% growth. Mr Singh sees this as possible if the PSUs deliver, despite an adverse external environment. The prime minister is using his considerable experience in managing crises to steer the economy out of the current slowdown. Hard decisions like raising fuel prices and allowing FDI in supermarkets and pension funds have arrested capital outflows. Investors and rating agencies expect a realistic fiscal consolidation plan from Mr Chidambaram. The central bank, too, has made it clear interest rates will come down if the government reins in its spending. The last bit of the government’s strategy is to prod investments, with market and non-market signals.