Government woes add to investor apathy

At a time when the country is facing severe external pressures as a result of the slowdown in our main consumer economies, Europe and USA, investors may look towards the govt. to provide some respite and much-needed shelter. However, the people’s confidence in the govt. seems to be deteriorating with every passing day, thanks to some unreasonable and disappointing decisions made by the center in this fiscal.

Blame it on some over the top growth estimates made by govt. agencies at the start of the fiscal, or on the imposition of certain unruly policy decisions, or on fact of having retracted on certain key policy decisions – but it all seems to have gone askew for the govt. right from the onset. 

Take, for example, the budgeted GDP growth estimate of 9% for this fiscal. Judging by the way growth has contracted from 7.7%  in Q1 to 6.9% in Q2, and keeping in mind the expectation of further moderation on this front, our GDP growth is expected to be well below the figure of 8.6% that we achieved in the last fiscal.

At the time of announcing the budget estimates, food inflation continued to remain close to the 9% mark, with the RBI already in the process of increasing rates and the govt. raising caution over it. Hence, one must question the rationale behind the govt.'s ambitious estimates for the GDP growth. In fact, recently, while addressing a session of Parliament, the Finance Minister agreed that the economy was in a rather difficult situation due to slowing growth and stubborn inflation. He also went on to say that the govt. had been short sighted about the impact of the Euro debt crisis on our economy.

One may also look at the disinvestment target of Rs 40000 cr, which has so far managed to garner merely Rs 1145 cr for the govt in reality. It is true that going from the success of Coal India's IPO in Oct 2010, one may have had some positive aspirations from the disinvestment process. Looking at the larger picture of abating investor confidence though, the govt. has yet again fallen pray to its own over-ambitious targets. Also, the inability of the govt. and PSUs to come to an agreement on various issues related with capital-raising hurt the disinvestment process dearly. Now, with just a few months left for the fiscal end, the govt. has stepped up its efforts to at least meet a part of the target, in order to stay within its fiscal deficit forecasts. Amongst the many options, the govt. is believed to be mulling the idea of encouraging the PSUs to buy back their shares or undertake cross-holding strategies.

Further, in order to encourage increased investment in the fertiliser sector and boost investor confidence in companies operating in this sector, an Empowered Group of Ministers (EGoM) had decided to de-control urea prices and bring it under the Nutrient Based Subsidy Scheme (NBSS). This move was hailed by the industry, as it empowered them to price their products better at international levels and improve their lagging financial performance. However, in recent developments, it has come to light that in view of the way the previously decontrolled complex fertiliser prices have shot up over the past year, the govt. is apprehensive about going ahead with the urea decontrol policy. With a rising subsidy bill and the absence of core policies to address and improve the sector's near-stagnant situation, it seems that all the positive aspirations built around this sector over the past couple of quarters may come to a regretful end.

Very recently, the govt.'s decision to pull back on the 51% multi-brand retail FDI allowance in order to maintain peace in the Parliament and ensure smooth proceedings, has not gone down well with the people at large. While it is good to hear that we might see the decision on 100% FDI in single-brand retail going through very soon, it comes as a huge disappointment that multi-brand retail FDI may not see the light of day anytime soon. Also, a large number of leading corporates were banking on the multi-brand FDI allowance to push growth forward for them. and it is disheartening that the decision has been called off for now.

Added to these are the woes surrounding the telecom and oil & gas sector, which are currently facing some turbulent times as a result of various scams, under-recovery related issues and some unreasonable governmental impositions and restrictions.

In conclusion, looking at the overall sluggish economic scenario, it seems that investors' confidence in our system seems to be abating at an alarming rate. Though the overall global scenario may improve over time, but we have our own concerns on the domestic front that need to be addressed swiftly. Thus, it is imperative for the govt. to take some key steps to bring things back on track. However, for now, the govt. seems keener on tackling non-core issues like the internet censorship drive and the Lokpal Bill.