The recent news regarding the latest tussle between the insurance regulator IRDA and the finance ministry shows some signs of desperation on the side of the ministry to meet the disinvestment target. The finance ministry expects to raise Rs. 30,000 crore through the sale of government stakes in state owned companies.However this target seems to be far from being achieved.
The main reason for this type of disinvestment is the rising fiscal deficit which has to be reduced if India does not want to be in trouble.
The recent 2G auctions have also left the government concerned about meeting the target of reducing the fiscal deficit to 5.3% of India's GDP. The estimated revenues from the auction were Rs.40,000 crore however the auctions were able to raise only Rs.9,400 crore.
With this two problems in front of GoI it is obvious for them to get worried and hence they do not want to take any risks. So they have now decided to allow LIC , India's largest insurer to invest in buying stakes of listed companies up to 25% (up from 10% previously). This decision might be a bane because it might increase LIC's exposure to risk and thus investor's money might be at risk. So IRDA is opposing this.
Whether this decision is useful or like the other two trials this too will prove to be a flop for GoI is a question which is yet to be answered.
Parth Pandya
SIMSREE Finance Forum
Tuesday, November 20, 2012
India Inc.'s Dilemma
4 comments:
The government in an attempt to reduces fiscal deficit is trying all the means to raise money. Wrt to the 2G auction the lesser earnings was a blessing in disguise. It could said the spectrum scam was not as big as was said to be earlier. But wrt LIC it has to be careful because the risk involved is very high as lot of public money is involved.
Similar situation happened with the sale of stake in ONGC with the govt itself (LIC) buying the stake. It is been said that the same saga will continue for SAIL and NMDC's sale of stake as well.
Time and now GoI uses LIC as a cash cow whenever it is in a short of money. And the stake sales have failed mainly due to the inter ministerial differences.
In this stake sale, according to me GOI had no other option but to use its cash cows to buy stake as it was not willing to let off the part because it would have dampened the government's chances of achieving its disinvestment target...on the other side of the article i.e. the 2G auction, government was more willing to prove CAG wrong rather than making it a success though there are many other reasons for 2G auction failure which i am not ruling out but i think government could have done a bit better on this
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