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PSUs seek govt support for capital expansion

July 10, 2009 12:54 IST

State-owned enterprises are depending more on government money to fund their capital expansion in the wake of the economic downturn.

The share of government support to public sector enterprises, according to the latest Budget documents, is projected to increase sharply by 6 percentage points in the current fiscal (2009-10).

This is because profits of public sector units are hit by economic downturn, thus hampering their ability to fund future projects through internal resource generation. Also, an illiquid credit market, characterised by high cost of borrowing, is cited as another reason for the increase in seeking state support.

"The downturn has had obvious effect on the resources of private sector enterprises and, therefore, the balance has tilted towards government spending," said DK Joshi, principal economist with Crisil India, a research and ratings firm  Internal and Extra Budgetary Resources now account for only 46 per cent in the central plan outlay for the current fiscal, compared with 52 per cent in previous financial year.

The government's plan expenditure consists of direct budgetary support and IEBR, which constitutes resources raised by public sector undertakings through profits, loans and equities.

Moreover, the revised estimate of 2008-09 registered a significant drop of about 6 per cent in IEBR compared to the Budget estimate, indicating a sharp fall in resources and profits of PSUs in the recession-hit financial year 2008-09.

Though IEBR's contribution has seen a decline, there has been a rise of around 13 per cent in IEBR in the 2009-10 Budget estimate to Rs 2 lakh  crore (Rs 2 trillion), while the government's spending through Budgetary support has risen by around 17 per cent from the 2008-09 estimate to Rs 2.3 lakh crore (Rs 2.3 trillion).

The major ministries which have suffered a decline in resources are rural development, mines, and communication and IT.

The resources of the ministries of rural development and mines have gone down by around 18 per cent each. The Ministry of Communication and IT has registered a decline of around 17 per cent. The ministry of Petroleum and Natural Gas has also suffered a marginal decrease in resources.

The companies that have registered a significant decline in resources are Hindustan Copper Ltd, under the ministry of mines, with a drop of 33 per cent; Bharat Sanchar Nigam Ltd, under the communications and IT ministry, with a decline of around 21 per cent; and the National Bank for Agriculture and Rural Development with a decline of 18 per cent as against last year's estimates.

Devika Banerji in New Delhi
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