India Orders State-Owned Companies To Invest In Public Sector

By: EW News Desk Team   Date: 18 January 2012

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18 January 2012

17 state-owned companies in India have been told by their government to start investing in public infrastructure projects, said the Financial Times on Wednesday, after a series of political inaction, coupled with an exit of foreign capital, saw the nation’s economic growth rate decline from 9 percent to 7 percent last year.

India’s Oil and Natural Gas Corporation, Coal India and the National Mineral Development Corporation, among others, have agreed to spend as much as $35 billion from their reserves over the upcoming fiscal year in order to expand their operations.

Part of the sum, which is almost twice as much as the $19 billion worth of foreign direct investment into India in 2011, will also be used towards purchasing overseas energy assets – such as coal, natural gas and oil – so as to secure India’s energy security for the future.

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They (the companies) are sitting on piles of cash,” said an Indian official to FT, who cited the urgent need by the government to boost confidence in the economy as the reason for mobilising currently “inactive” resources.

The government also hopes that the stimulus measures by state-owned companies would spark spending from the private sector as well.

“The domestic economy deserves a push that can be provided by the government,” said Madan Sabnavis, chief economist at Mumbai-based Care Ratings. ”The focus will be on project expenditure this time to provide a boost to the infrastructure sector.”

According to a World Bank report on Wednesday, India’s policy paralysis over the last year had been responsible for the international organisation’s lowered forecast for the economy.

"The weakening in activity (in India) reflects a significant moderation in domestic demand, led by a deceleration in investment activity that has faced headwinds of rising borrowing costs, high input prices, slowing global growth and heightened uncertainty," wrote the World Bank’s Global Economic Prospects 2012, as cited by Business Today.

"Delays and uncertainty surrounding the implementation of policy reforms have also hindered investment," it stated.

India’s top policymakers are also said be worried about their economy’s loss of momentum, and have such begun to implement new policies, including opening up its stock markets to direct foreign investors, in order to spur a turnaround.

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Last week, India’s Finance Minister Pranab Mukherjee himself admitted that the upcoming months could be a “difficult’ period for the economy.

Still, “despite the challenges before us, I am confident that we will improve our short term growth prospects in the coming months," said Mukherjee, as cited by IBN Live

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