Disinvestment in India is finally seeing some light of day

Disinvestment in India is finally seeing some light of day. As reported on Bloomberg, India’s cabinet yesterday approved a plan requiring all state-run companies to make sure that 10% of shares are publicly traded. The proceeds from these stake sales would be used for spending on the government’s social programmes which require topmost priority, namely reducing unemployment and building infrastructure such as roads, ports and utilities. Not just, such a move would also enable the government to reduce its dependence on borrowings.

In fact, this seems the best time for the UPA government to actually make significant headway in this regard (disinvestment) since it no longer has to contend with the Left obstructing its path. So, keeping in mind all these factors, was the rally in PSU stocks (up 4.7% during the week) justified or has there been too much hype?

While we believe that the government’s intentions are in the right direction, execution as usual has been a serious issue. Various plans of government stake sales in the past had hit a stone wall. Therefore one will have to wait and watch to see whether this plan is actually put into action.