Govt to develop plan for investment of surplus funds of PSUs

The government wants CPSEs to invest their funds, mainly in infrastructure sector, to promote growth

June 25, 2012 11:29 IST | India Infoline News Service
The government will soon discuss with market regulator SEBI (Securities and Exchange Board of India) to develop a plan for investing surplus funds available with central public sector enterprises (CPSEs) to stimulate the country’s growth, according to media reports.

The government wants these CPSEs to invest their funds, mainly in infrastructure sector, to promote growth and bring down the country’s fiscal deficit to 5.1% in the current financial year 2012-13.

For FY11-12, India’s gross domestic product (GDP) growth slumped to 6.5%. This is the slowest pace of expansion in the country’s economy since 2002-03, when it had registered a growth of only 4%. The reasons for the low GDP are attributed to inordinate delays in projects, various issues related to foreign investments and rising deficits.

During FY11-12, the country’s fiscal deficit rose to 5.9%. This occurs when a country imports more than it exports. Costly subsidies have pushed the fiscal deficit to 5.9% from a target of 4.6% of GDP in the fiscal year that ended in March 2012.

The reports added, a committee of the Department of Public Enterprises (DPE) has been formed to review the guidelines on investment of surplus cash available with public sector units (PSUs). The DPE—headed by Department of Economic Affairs—is in the process of forming a consensus in this regard and will consult SEBI soon.

Currently, the DPE has issued many guidelines with reference to investment by PSUs. The DPE has also consulted the Reserve Bank of India (RBI). The central bank has suggested to the committee various investment options such as mutual funds and government securities wherein PSUs can invest their money.

The surplus cash available with about 20 CPSEs is around Rs. 1.2 trillion, and is mostly deposited in banks and earns interest at the rate card. In January 2012, the Prime Minister’s office (PMO) has directed PSUs to invest around Rs 1.2 trillion mainly in the infrastructure sector which would act as a stimulus in FY12-13.

The country’s infrastructure sector needs over $1 trillion in the next five years. The government has said it alone cannot make such a huge investment; therefore, importance is being given to public-private partnership.

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