Wednesday, April 11, 2012

Government vs PSUs

Every few months the chief auditor of government accounts (CAG) has been unraveling cases of preposterous wealth destruction. Over the months, the 2G telecom scam, the mining scam and now the coal block scam have conveyed one message clearly. That vested interest has destroyed sovereign wealth. In some cases the corrupt ministers benefited. In others private companies raked in profits with cheaply acquired government assets. However, that public wealth was destroyed stands uncontested.

In recent days, the government's actions against profitable PSUs have redefined wealth destruction altogether! True that the threat from rising oil prices has never impacted the Indian economy as sharply as it is now. Right from currency deprecation to inflation to high interest rates to retarded GDP growth to fiscal deficit. Every economic variable has been adversely hit. Hence the government has turned to the few cash cows in its stable to bail itself out from distress. The profitable or cash rich public sector companies were initially supposed to raise funds for the government through public offerings. However, volatile markets led to the debacle of the disinvestment plans. This forced the government to milk the PSU assets indirectly. Getting Coal India to pay for imported coal or Indraprastha Gas to supply fuel at rock bottom rates are part of the tactics.

No doubt better supplies of coal and natural gas can sort out India's energy needs to a great extent. That can also ease inflation and boost growth rates. But draining PSUs of their cash and other resources is certainly not the ideal mode to achieve this goal. Such random policies also show the lacuna in policy making. The government has realized the importance of investments in discovery of energy resources very late. It is a pity that more wealth destruction in profitable PSUs will cover the government's ineptitude.

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