The reserve Bank of India on the eve of its mid term last quarterly review of FY 2011-12, brought down the CRR by 75 points which restored Rs 48,000 Cr to the respective Banks. The advance payment of Income-tax which is expected to touch Rs 60,000 Cr has started coming to the public exchequer. With the budget day, tomorrow, expectations are heavy. GDP growth may fall to less than 7% from the 9%, and fiscal deficit is likely to go up beyond 4.2% envisaged in the budget. Even though petrol prices have been hiked and the diesel price is waiting to be hiked, the State government and its Chief Ministers who are part of UPA and outside it, have been demanding restraint in the hikes as anti aam admi. The straying of inflation far beyond Government expectations uprooted the economy and the people are reeling under its direct and indirect impact. Any increase in prices of Public transport system like the railways is resented. Government fiscal deficit continues to outstretch the predicted rate, as the finance ministry is unable to match the Revenue receipts with expenditures. Government failed to take advantage of pricing Spectrum etc high so that the revenue would have added to Government’s income. The disinvestment in ONGC resulted in a flop, because of bad timing, wrong pricing. However, LIC had to jump in to save the day for the Government. The projected disinvestment in the budget 2011-12 was Rs 40,000 Cr.
Life Insurance Corporation of India (LIC) is also a financial institution, having assets around Rs 14 trillion. More than 25% of the Indian public have insured with the LIC. With a huge asset base, the Corporation’s influence on Indian financial markets is very large. Even in the midst of the arrival of new players, both domestic and foreign, LIC continue to hold its sway over a fixed percentage of the Population as a reliable and trustworthy organization. It has been managed well, and its investment returns regularly forms a part of its track record.
That LIC has traditionally been a major participant in most public issues of PSUs. It apparently also funds nearly 25% of government's expenses. Is it wise to deploy its funds to salvage the reputation of debt strapped public utilities, It has been argued on behalf of the government that LIC's investments in PSUs have swelled in market value over the years. Experts opine that most of the investments are government forced and there has been an erosion of nearly 25% of the investments in recent times. Take the recent Oil and Natural Gas Corporation (ONGC) public issue for instance. Buying shares in an overpriced issue that had been skipped by other investors is not prudent economics.
This brings to the fore, the plight of India’s first mutual fund, the US-64. It was looked after by the state sponsored Unit Trust of India, which went ahead with unworthy investments which took a heavy toll on its returns. The funds collapsed. The government would do well to leave the navaratnas to its own management. The disinvestment proposal hinges on selling a part of the share holding to public thro’ secondary market. Like LIC, Coal India seems to be another milching cow.
Public Sector units are badly managed. UTI was bailed out in 2002. Air India continues to be a headache, requiring infusion of funds. BSNL and MTNL are the other utilities awaiting central funds to revive. Public has a stake in these companies, as it is the exchequer which finances government’s spending.
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