The Hindu Business Line : Mutually beneficial

On the heels of the decision to allow Mr Laxmi Mittal to invest 49 per cent in the Bhatinda refinery by the Cabinet, to which the matter had been referred after being approved by the Foreign Investment Promotion Board and the Ministry of Petroleum, comes another instance of quick decision making. The Cabinet Committee on Economic Affairs has cleared the way for bluechip public sector undertakings to participate in the stock market but through equity mutual funds. Like the Mittal proposal this too had been pending since May; that it has taken the Cabinet just two months to arrive at some resolution is significant given the history of government sloth over even routine decisions.

The Cabinet’s endorsement of the proposal to allow bluechip PSUs to invest their cash surpluses in mutual funds is an eloquent testimony to ingenuity at work in some quarters of government. Considering the reluctance of some of the parties constituting the alliance government to allow dilution of equity in the bluechip PSUs for reasons that appear increasingly vague and unsustainable by economic logic, permitting them to park their funds in equity mutual funds appears the next best thing. The fact that the access has been restricted to public sector mutual funds highlights the policymaker’s attempt to forestall any objections that public money would be used for private profit. But at the very least, such indirect participation of bluechip PSUs in a market that is expanding incrementally by the infusion of funds — now, mainly foreign — and the emergence of new companies with potential earnings can only deepen the bourses, and, incidentally, enrich the government. The surplus of central PSUs in 2005-06 is put at Rs 2,39,535 crore with the bulk accounted by 12 Navratnas and mini-ratnas. The value of government holding in Indian companies, mainly the PSUs, a fortnight ago stood at Rs 5,26, 200 crore. That notional wealth is a third of the government’s domestic debt and should give most opponents of ‘PSUs in the equity market’ something to think about.

While the Cabinet has allowed PSUs the same opportunity as their private counterparts to invest in mutual funds, it has been choosy in its generosity. The CCEA has restricted the access of the surplus funds to public sector mutual funds and that too for a year. While the first discriminates mindlessly since all mutual funds are bound by the same regulations, the second is an absurdly meaningless time frame. A year-end review would reveal little that the Cabinet could not have learnt from the track record of both the mutual funds and the Navratnas in the equity market. A five-year period would afford a better perspective on the initiative’s results.