Short on cash,govt eyes surplus with PSUs

Ministers,depts told to report by Nov 15 excess money with PSUs after investments

The Prime Minister is eyeing the significant cash surplus with 24 rich public sector undertakings (PSUs) to tide over his governments revenue shortfall in the current financial year and to keep the fiscal deficit within bounds.

Last Monday,the Prime Ministers Office directed 10 ministries and departments to conduct a 12-month investment plan of the identified PSUs under them and report by November 15 the surplus they would hold beyond their investment needs.

Tables annexed with the PMO letter show that the government plans to ask these PSUs to use the surplus cash to buy back their shares held by the government. Numbers in the tables indicate two options: buyback at 5 per cent or at 10 per cent of the market capitalisation as of September 30.

It is imperative that these surpluses,possibly leveraged suitably,be utilised productively, says the PMO letter.

It has identified only those PSUs that hold over Rs 1,000 crore in cash and as bank balance as of March 31,2010,and has arrived at a collective surplus of Rs 1,42,740 crore with them.

The option for shares buyback is being resorted to following government failure to conduct the disinvestment of ONGC given the volatile stock market conditions. So far this fiscal,it has only managed disinvestment of Power Finance Corp,raising Rs 1,145 crore,against a target of Rs 40,000 crore for 2011-12.

The government is facing a challenge in meeting its fiscal deficit target of 4.6 per cent this year as two-thirds of the annual target was crossed in just the first five months. It has already borrowed from the market Rs 53,000 crore more than the annual target and is facing a subdued growth in tax receipts.

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Though work has started on an initial public offering of Hindustan Aeronautics Ltd,Rashtriya Ispat Nigam Ltd and National Building Construction Corp as well as a follow-on offer of Steel Authority of India Ltd and Bharat Heavy Electricals Ltd,the market blues could jeopardise the process.

The buyback would immediately place money in the hand of the government while improving the earnings per share of the PSU. However,such a restrictive buyback would have to be approved by the capital market regulator Securities Exchange Board of India.