NEW DELHI: After failing to cajole the private sector into loosening its purse strings, the government is now looking at the . 6.6-lakh-crore cash pile of state-run companies to spur growth. The finance ministry has constituted a committee under additional secretary Shaktikanta Das to explore and suggest ways to simplify investment norms for more than 246 public sector enterprises.
The move comes amid a steady drop inIndia’s rate of capital formation, a measure of investment in future growth, which slipped into the negative 1.2% in the third quarter of 2011-12 from 11% in the year-ago quarter.
“There were issues raised by PSUs on bulk deposits, investment in mutual funds and keeping their surplus with foreign banks,” a finance ministry official said.
The government is expecting state-run companies to drive growth in the country at a time of worsening global economic situation, the official said.
About 17 large public sector enterprises have already drawn up investment plans amounting to Rs. 1.4 lakh crore.
The finance ministry panel will seek inputs from the Reserve Bank, one of the country’s largest fund houses UTI Mutual Fund, and the largestlenderStateBank ofIndia, the official said.
He said the government might also ease the norms to facilitate PSUs in their foreign acquisition plans by giving them the freedom to park their surplus funds with foreign banks.
At present, state-owned companies are not allowed to keep more than 40% of their surplus funds with private banks.
“A good rapport with a foreign bank will help a PSU in acquiring assets overseas,” the chairman of a leading power sector company said. “This also helps in securing a letter of credit on easier terms.”
Banks charge 10-15% of margin money for issuing a letter of credit to a company that does not hold an account with the bank.
“This could go up to 60% if the company had no relationship with the financial institution,” said director of finance at a coal sector PSU.
Some of the state-owned enterprises have also sought easing of norms governing investments in mutual funds. As of now, PSUs can invest only 30% of their surplus funds and that too in public sector mutual funds.
“There is no point in this restriction as most PSUs invest in liquid or liquidplus funds and generally withdraw within 3-5 days,” said the head of a public sector company. According to the Public Enterprise Survey of 2010-11, financial investments by PSUs in mutual funds (loans and equity), fixed assets and similar instruments has had the highest increase of 46.03% over the previous fiscal. The committee will also look into the issue of inviting competitive bids for bulk deposits by PSUs. The finance ministry had earlier issued orders prohibiting PSUs to invite competitive bids for bulk deposits.
“We had already raised this issue as PSUs may face a loss of around . 5,000 crore annually because of these restrictions,” said a member of the Standing Conference of Public Enterprises, the apex body of state-run firms.