As The Commies Exit, Can The Economy Expect More?

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The fallout of Congress-led United Progressive Alliance’s victory in the recent trust vote is positive for the economic reforms agenda. Although one cannot expect big ticket reforms since the elections are round the corner, it’s likely some of the policy measures (which will not antagonise voters in a big way) may see the light of day. Especially now that the anti-reformist Communist Parties are off UPA’s back.

Banking - Banking Regulation (Amendment) Bill is expected to be introduced in the upcoming monsoon session of Parliament. This bill will allow foreign investors to have voting rights equal to the stake they hold rather than being restricted at 10 per cent. On hope of reforms Bombay Stock Exchange’s Bankex index rose by 9.9 per cent outperforming by nearly double the mark the benchmark Sensex’ gain of 5.9 per cent. To start with, the cabinet has today approved the merger of State Bank of India (SBI) with its associate State Bank of Saurashtra (SBS).

Insurance - Insurance Bill will propose to increase the FDI limit in the sector to 49 per cent from 26 per cent. A number of insurance companies have foreign partners in their joint ventures, who want to raise their stake in order to bring in more funds and thus expand operations.

Pension - Pension Fund Regulatory and Development Authority (PFRDA) bill, which proposes 26 per cent FDI in companies involved in pension fund management. Passing of this legislation should be easy as it has already been vetted by a parliamentary committee.

Forward Markets - Forward Contract (Regulation) Amendment Bill aims to streamline the forward markets and empower commodities market regulator Forward Markets Commission.

Expected PSU IPOs - According to an Edelweiss IPO review, about 75 closely-held government companies and banks have evinced interest in diluting their equity and going public.

Bharat Sanchar Nigam Ltd - The much awaited mother of all IPOs of India’s largest telco may go ahead. The size of the IPO is expected to be $10 billion, with BSNL diluting 10 per cent stake.

National Hydro Electric Power Corporation - NHPC accounts for 3.7 per cent of country power generation and is planning to raise Rs 1,600 crore, divesting 10 per cent stake for further expansion.

Oil India Ltd - Government plans to divest 10 per cent in a pre-IPO placement to the three oil marketing companies - Bharat Petroleum Corp Ltd, Indian Oil Corporation and Hindustan Petroleum Corp. Then in the IPO, government plans to raise Rs 2,000 crore liquidating a further 10 per cent

Damodar Valley Corporation - Government has already commissioned KPMG to work out the modalities for DVC going public. It may also look to list others such as Satluj Jal Vidyut Nigam and North Eastern Electric Power Corporation.

Railways IPOs - The railways is planning IPOs of its profit making subsidiaries. Through listing of Ircon, Indian Railway Catering and Tourism Corporation (IRCTC) and RailTel railways is expected to raise Rs 1500 crore. The cabinet had already given the nod for IPO of Rites, whose net worth is more than Rs 500 crore.

Among other public offerings which can also be expected are those of Gujarat State Petroleum Corp. Ltd (GSPC) in December this year, liquidating 20 per cent equity. Coal India Ltd, which is awaiting navratna status, can also come out with an IPO raing Rs 4,000-4,500 crore.

Divestment - The government may divest 5-10 per cent stake in a number of public sector undertakings. The government may look at selling stake in mini-ratnas such as MMTC Ltd, State Trading Corporation (STC), Shipping Corporation of India (SCI) and Bharat Electronics (BEL). This list may also include Nuclear Power Corporation (NPCIL), Cotton Corporation (CCI), ITPO, RINL, Pawan Hans Helicopters, Telecommunications Consultants (India) and Indian Railway Fund Corporation. Some of these which are already listed, the government may give a follow-on public offers (FPOs).

These stake sales could help meet government the increased wages under the Sixth Pay Commission. They would also help the government generate funds for the planned waiver of Rs 60,000 crore worth of farm loans announced in the Budget this year.

There could also be a direct fallout of Indo-US Civil Nuclear Agreement. It is estimated that India’s civil nuclear energy sector will need at least $100 billion worth of investment during the next 20 years. U.S. companies hope to capture as large of a share of that investment as possible. Indian Companies like Larsen & Turbo Ltd can also directly benefit from this agreement as it supplies material for construction of Nuclear Power Plant.