The Centre is increasing the pressure on state-owned institutions to put their cash holdings for better use – spending.
Coal India Ltd (CIL) has been told to step up its outlay of major investments, which would boost the economy. Government sources have indicated that the pace of capital expenditure is to be reviewed more frequently.
$19 billion cash hoard
Five of India's major state-owned institutions - Coal India, Oil and Natural Gas Corp, Bharat Heavy Electricals Ltd, NTPC (National Thermal Power Corporation) Ltd, and NMDC (National Mineral Development Corporation) Ltd, are sitting on cash and equivalents, worth $19 billion, as per stock exchange fillings. The funds, if effectively used, could help with furthering investments, which would allow the economic growth Prime Minister Narendra Modi speaks of.
ONGC Chairman Dinesh Kumar Sarraf noted that the government wants them to invest more, including to "acquire more assets."
The revised statistics released last week showed that India had expanded by 6.9% up to March 2014. The data has been based on an updated model of economic growth calculation.
State-controlled companies have been instructed to explore opportunities in domestic and international arena, for key asset purchase, joint ventures with other government agencies and public-private partnership (PPP) to increase investment.
Meanwhile, NTPC's finance director Kulamani Biswal said the power generator would invest about $4 billion annually over the next five years.
Increase Capital Expenditure
The 60-member S&P BSE India public sector undertaking index rose by 49% over the previous year, compared to a 43% gain in the benchmark S&P BSE Sensex.
Karvy Stock Brokering Ltd's head of fundamental research Jagannadham Thunuguntla remarked that increase in investments by government-controlled organisations would be a "game changer," as it could trigger an avalanche of economic activity and would help see an uptick in fresh gross domestic product.
A Deutsche Bank report, authored by its economists Taimur Baig and Kaushik Das on 23 January, spoke of state-owned companies becoming the probable main drivers of capital expenditure recovery.
India has a legacy of missing opportunities, with red-tape and bureaucratic inefficiency contributing to a list of missed spending targets. Coal India alone has an unenviable record of missing output goals on the back of insufficient investment and clogging up of the railway rake availability. Funds allocated for buying overseas mines remain mostly unused.
Even as the Modi government is rushing to sell stock holdings in state-owned entities, many argue that it would be better for the government to seek a higher amount as dividend, while also maintaining its holding in the state-owned entities. Such funds could be used in the budget for key investment projects, said Samiran Chakraborty, head of regional research at Standard Chartered Plc.
For the current fiscal year, Finance Ministry is expecting to mop up ₹27,800 crore in dividends.
A panel set up to breathe life into stalled projects have cleared almost $111 billion, since June 2013. A further $200 billion awaits approval.
Investment revival is dependent on faster approval and easing of the land acquisition process, which the Narendra Modi government tackled last month through an ordinance to the Land Acquisition Act.