Investment and Divestment

INVESTMENT AND DIVESTMENT

By Arpit Sharma

Unlike USA, Government in India owns and controls many sectors. Some of the companies owned by the Government are booking profits yet most of them are liability to government exchequer , moreover the profit makeing companies are also overstaffed and remains below potential compared to their private counterparts. In today’s scenario the government is sitting upon a huge growing pile of fiscal deficit and our GDP growth rate is also the lowest in the last 11 years. The government is in need of funds to invest in the priority sectors and also to reduce huge fiscal deficit. The government cannot increase the tax rate because if it does then it will make the condition of the corporates which are hardly surviving even worse.

The Sudden demand of funds can only be met by smart divestment in some sectors in which the government is making losses and investing in the sectors which will help the government in boosting economic growth. A recent smart move by the government of India is the decision to sell 100% stake in Air India, since Air India is running into losses since long and at the same time not providing any exceptional benefit. The ticket price of Air India is more or less the same as compared to any other private airline so it makes no sense for the Government to keep it running and making losses. But this condition is totally different when it comes to one of the biggest employment generator in the world. Even if the Indian Railways is making losses, it would not be a smart move to divest it because it is the only means of transport which is available at an affordable and reasonable price for both the middle and the poor class.

Off late trade as the proportion of GDP has fallen to 39.6% from 43.3%. Investment remains limping 28.1% of the GDP. It is only consumption that is making up, that too essentially because of government consumption is growing at 14%, even as private consumption rises by 9%. Smart investment strategy is the key to get out of this economic slowdown.

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