This actually reflects the deep rooted problems faced by India. Between 2000-01 to 2011-12, while India’s nominal GDP grew by 308%, its subsidy grew by 706% - at a rate which is more than double that of the growth of nominal GDP. Moreover, the problem with subsidies in India is that it is mostly input subsidy and hence more prone to wastage, apart for large scale corruption. This is best exemplified by the plight of the power sector. Electricity is quite often given away free to farmlands and in case these are charged in rural areas, the charges are miniscule. Then there are inefficient distribution system and pilferage, which leads to overall T&D loss of nearly 25%. In case of India, the problem is while power equipment manufacturing is virtually 100% private, power production is more than 505 private, power distribution is a mere 5% private. Most of the State electricity Boards (SEBs) are running at a loss and a majority of them have negative networth, while the debt of their books very high. Political considerations prevent user prices from being revised upward. Yet banks are forced to lend to the SEBs, often enough without adequate collateral. Bankrupt SEBs affect the health of the power producers – mostly the smaller independent power producers (IPPs). This leads to rise in NPAs of the banks and hence, the health of the banking sector, especially the PSU banks. Thus these banks need to be recapitalised at regular intervals, which puts additional burden on the fiscally challenged government.
There are numerous examples of the government coercing the state-owned companies to act against their business interest while attending to the politically motivated social needs, leading to their valuations being depressed and thereby impacting the shareholders. Not surprisingly, during FY12, while the government targeted a disinvestment revenue of Rs.300 billion, they managed just about half of that. This year also the government has a revenue target of Rs.300 billion from disinvestment. This is also unlikely to be met, thereby putting further pressure on the fiscal front. The financial performance of the OMCs clearly exposes the madness in the methods of the clueless government.