Disinvestment of PSEs: Delay may dampen sentiment

CALCUTTA, JULY 16. The Duff & Phelps Credit Rating (DCR) India has decried the new FDI norms and delay in divestment of some PSEs by the Centre saying such moves might dampen the spirit of potential overseas investors to the country.

"The changes (in the rules for FDI) are not expected to bring in any substantial foreign inflows in these (infrastructure) sectors," the agency said in its latest report on 'DCR India economy update'.

It also criticised the Centre on its failure to manage a consensus on divestment issue and delaying the process as well as incorporating inappropriate strategy and timing of divestment.

Stating that the decision of the Cabinet Committee on Disinvestment (CCD) to hold in abeyance the divestment of Government's stake in PSEs such as MTNL, BHEL, Maruti Udyog and others would be an "impediment" for the economic reforms process, the DCR said "such development could slow down the FDI flow into India." The Centre had recently announced new FDI norms to accelerate investment in infrastructure, specially power and petroleum refining. It had approved 100 per cent foreign equity in petroleum refining and B2B e-commerce and removed the Rs. 1,500 crore ceiling on investment in power plants.

"What has held back investment in the power sector has been the absence of reforms and restructuring of public utilities," the DCR said.

In the refining sector, it said, the commissioning of the Jamnagar refinery by Reliance Industries has resulted in a surplus in the refining capacity.

"This, coupled with the continuation of the administered price mechanism in retail sale of petroproducts, will not find multinational companies investing in this sector." The DCR, however, welcomed the opening up of the B2B e-commerce and suggested that the Centre should also look at opening the B2C segment to FDI, as allowing foreign e-commerce businesses to invest in India would offset any outflows on this account.

On the divestment front, the DCR said the Government, besides delaying the process, was also lacking efficiency in proper valuation of the companies.

While delays on the part of Government waned the foreign interest in the IPCL, problems with valuation had affected the GDR issue of VSNL, it said.

The agency also warned against the Centre's "tactical support" to blue chip PSEs and said "these units may find survival difficult when the market forces reign."

- PTI

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