On Friday Punjab National Bank (PNB) has asked the government to provide it Rs 1,500 crore to shore up its equity. The reasons? Its profit from its core operations as distinct from its investment in government papers has dipped 2.3 per cent in the June quarter, year on year. Partially because, in one quarter, the public sector bank’s restructured power sector dues has leapt up by 26 per cent to Rs 12,240 crore, as its presentation to analysts show.
On the same day, private sector Lanco Infratech with a big presence in the power sector, moved the corporate debt restructuring cell for its Rs 7,500 crore debt overhang. These are the two wedges of the same problem — the yet unresolved pricing issue in the power sector.
They throw up a thorny evidence of how a state-supported model of development that India has practised for the last decade is coming unstuck and which cannot be simplified as an adventure in crony capitalism. That would neither identify the source of the problem nor offer a solution.
For the better part of the last decade, public and private sector companies had signed tie-ups encouraged by the government. These joint venture entities spanned coal mining, power, roads, ports, real estate and SEZs to offer the advantage of technology (NTPC), the ownership of resources (ONGC) or as means to get around legal hurdles (Coal India).
But as the investment climate soured, the ventures rebounded on both partners. As each of India’s largest public sector companies are adding up the costs of these investments on their balance sheets, the banks too — again mostly public sector, like PNB are piecing together, the costs of these exposures.
These costs have to be factored in by the government before it can expect fresh investments to come through. For instance, a clean up of the banking sector’s exposure to the telecom sector, which as per RBI data is Rs 93,600 crore as on May 31, 2013, and without a resolution of the impasse is difficult to see going forward from here.
If the political administration now, or after the elections, instead insists on isolating each of the failed investments as an opportunity to settle political scores without counting these costs, it will take us nowhere. More, the economic development plan will itself have to be constructed anew that no Cabinet Committee on Investment can do in a hurry. This is the agenda the