MIS- ROUTING through DIS-INVESTMENT_____!!

First of all I would like to define what is Dis-Investment!

In simple words, It is negative investment, in other words, it means to sell ones investments in shares, properties, or any other tangible or intangible asset or right.

Now i come to Need for Dis-Investment!

There can be many reasons, a few major of them are:-

1. good opportunity i.e. the owner is earning a good amount of profit on these investment;

2. availability of other good investment areas;

3. as part of some settlement, like family settlement and

4. major issue which gives rise to it is:

to pay off debts.

Now linking this definition and need to Indian context we find that:

Newly formed government is about to take the route ofDIS-INVESTMENT. As already defined, govt is planning to sell its shares or bring an IPO in state owned entities, also known as PSUs(public Sector Undertakings). Now somes the issue of NEED, now we see that what is the reason behind this decision for this GOVT who runs trillion $ economy. On analysing the above mentioned reasons we ge to know that our govt is under huge debt, which is Fiscal Deficit.

This fiscal deficit (as per govt. estimates ) is approx. 6% of Indian Trillion $ (10 lakh crore Rupees) economy i.e. Rs. 3.3 Trillion or Rs. 3 lakh 30 thousand crores. This high fiscal deficit has been finalced by loan at higher rate of interest which is around 10% pa. So Interest amounting to be on this huge amount would be:

Rs.33000/- (Rs. Thirty three thousand crores) pa.

What is Fiscal Deficit?: It is the difference between the Revenue Receipts and Total Expenditure especially used in context of Govt.

Presently Fiscal deficit can be dealt with by 3 methods:

a. printing of new currency,

b. increasing Taxes, and

c. Dis-investment.

Printing of new currency: as i have written earlier that there excess currency has already been printed and is already generating problems for the Economy.

Increasing Taxes: now govt is not in a position to increase revenue by way of taxes as there is already severe recession is going on and our industries are seeking for stimulus packages and bailout.

Dis-investment: So the only way left is Dis-investment. Govt is Planning to disinvest 8-10% of its holdings in PSUs and making it sure that total of govt's share shall not fall below 51% in total in any PSU.

METHODS WHICH CAN BE USED FOR DIS-INVESTMENT:

(i) Selling its shares in open market,

(ii) Asking PSUs to crop money through IPO.

Selling its shares in open market

This is the Dis-investment in real sense. As in this method govt will directly sell its holding into the markets and shall reduce its holding in PSUs and reducing got's voting rights. Under this method govt will be getting money directly from the buyers.

Asking PSUs to crop money through IPO

In this method govt will not sell its shares directly but will ask the PSUs to issue its shares by way of IPO(Initial Public Offering). However this will also decrease govt share hoding by increasing public's share holding i.e. this will also dissolve govt's voting rights.

However in this method money will flow to PSUs and not the govt. directly. this problem can also be dealt with by the govt. by issuing bonds to these PSUs i.e. by borrowing from these PSUs. That is these companies will act as govt's agent in arranging funds and will not left with enough funds for there developments.

These PSUs will crop money in the name of using this money for there expansion and development and this purpose will be defeated by the above mentioned loan arrangement

OR

These PSUs acting as govt agents will misrepresent and will misstate the facts to investors to extract mony from them.

The biggest Telcom Giant BSNL which is also an unlisted PSU is also in a pipeline to for disinvestment. While looking at the Balance Sheet of this Giant company it can be seen that it is sitting on a large pool of unutilised cash which is nearly Rs.60,000/- CRORES.

Now you yourself see that whether this company needs any further capital for its expansion or development which the govt is planning to raise by way of IPO???

GOVT is planning to raise Rs.70,000/- Crores to Rs.85,000/- Crores in the next two financial years.

Focusing back on to the Fiscal Deficit, the method to be followed to deal with it and the amount so raised we can clearly see that govt will be able to raise approx Rs.40,000/- Crores in each financial year out of which Rs.33,000/- Crores will be utilised in paying back only the interest on the actual Fiscal Deficit leaving behing less amount for anything.

This situation can be explained in a following manner:-

Extracting total water available in a well to revive completely dried up sea.

People may talk in favour of Dis-investment by saying "Dis-investment will lead to privatistion and hence will improve the efficiency", on this matter i would like to state that by Dis-investing or diluting 8-10% of its share holding will not decrease govt's share in these PSUs below 51% and untill govt's holding dont fall below 51% it will not change the status of these PSUs from Govt undertaking to private undertaking and therefore not effecting its management and hence will not improve its efficiency.

CONCLUSION:

I would like to conclude by stating that this decision to Dis-invest will be prove to be the biggest mistake in the long run and this will not release the govt of its debt rather it'll not only increase its debts but it'll reduce its assets too.

DOES ECONOMICS DO NOT HOLD GOOD IN INDIA??

I am Ranjan Sardana from Delhi. I have done B.com(h), LL.B. and i am persuing C.A. Final.

Since past few weeks a very big question hits my mind badly, that DOES ECONOMICS DO NOT HOLD GOOD IN INDIA??

I am confused regarding this situation because things are talked about as if everything is at ease. But by talking to people working in industry it reveals as if situations are very tight and contingent in the market.

I shall make myself more clear in this regard.

1.I agree that this time politically our economy is in sound situation. Its a very honoured, respected and very intelligent PM is in the chair. But anyone can controll only those situations which are under their control.

Lets take up BPO sector for example. if parent country somehow force its companies to retain this work in the country itself then what can be the situation in India, we cannot even imagine.

2. Today the situation of our trilion dollar economy is that we are into big fiscal deficit in real terms. which means either:-

a. more currency printing, or

b. more debt trap for govt.

Our previous govt has already done part "a" in the last tenure and now only option left is part "b".

Applying part "b" means more charge over our income. That is less income is available for disposal of both planned and unplanned expenditure. In oher words declining our real income.

3. Exports consisted of approximately 35% of our economy, the major demand was from USA, which now is in no state/ position of creating further demand. So it will definately effect the Exports and hence our Real Economy.

But Import bills are not likely to reduce that much, ultimately leading to huge unbalance in balance of trade. ain leading to adversely effecting Real money supply for disposal. effecting in two ways by:

(i) reduced exports, and

(ii) increased unbalanced balance of trade.

4. Many stimulous packages like tax rate cuts were offered again reducing Income.

5. reffering to points 2,3 and 4 above it can be said that real Trillion Dollar economy will bereduced to half. hence dragging India 5 years back.

6. The increase in prices in the last 2 years were due to "upward shift in Demand curve" so that inflation was about to happen, in order to control that unavoidable inflation our govt took many measures which made many projects in pipeline unviable to to be grounded. it hurted the economy in a serious way.

Is it that easy to re-start such projects, again incurring pre start up costs like feasibility reports etc..?

Is it that easy to revive the sentiments?

If its at all, then can all it be done in a matter of a few weeks or months?

Can everything in the economy be revived by way of giving stimulous?

How can NPAs be reduce in a economic scenario where people are loosing their jobs or thr incomes are decreasing?

7. (a) Today itself(25/05/2009) i was listening to a programme on CNBC Awaz, relating to is it being right time to buy a home..!!

By listening to it picture seems to be so rosy that as if nothing has happend.

There wer experts from industry, analysts etc. Their views were like property market is going to get stable for next 6 months and then again it'll experience a bull run.

(b)I am looking at the surprise move in the stock markets. Till two months back BSE was at 8000 mark and every analyst was saying that there is still downside.

Now only with "hopes" markets have recovered so much and things look as if its a new Bull run.

What i knew from study of economics is that share markets have a cycle of 3-5 years and property markets have this cycle of 8-10 years.. so obviously a time comes when both property and share markets see a Bull run togethet, and 2005-2008 was that period only.

Everything was very hot but now this engine needs to get cool down. Biggest economy (USA) gots Eits hands burn in it.

So is it a real situation that things will run again or its just as eyewash???

I would like to qouoe one more important thing, that i am a small investor, who entered markets in the Jan 2008 after the Big fall. I have burnt my hands in this markets since then twice. But i will not take it as my defeat. I'll again come back to these markets but this time to earn. But for that i need to know that should i go for rumours and unexpected things or should i go theories of Economics which talks of Cycle of economy, consumption, savings and investments, trades, fiscal deficits, effects of note printing, gestation periods, heavy sunk costs leading to eroding of capital etc.

I have many more questions, but the above mentioned are a few of them.

Till u read this i'll write other articles...!!!