The unexpectedly good response to the initial public offer (IPO) from Coal India, with a 15 times subscription, has naturally enthused the market and warmed the cockles of the government’s fiscal managers, who hoped to raise Rs 15,000 crore from this one IPO. It is now clear that after the 3G auction and Coal India proceeds, and following the revival of economic growth with forecasts in the range of 8-9 per cent, the Union finance minister finds himself comfortably placed in meeting his fiscal deficit targets. Indeed, it would be a good idea for the finance minister to announce, during his mid-year review of the economy, a more conservative target for fiscal correction than was earlier planned. This is the year for fiscal correction. With Bihar elections out of the way this month, and no major elections scheduled until mid-2011, the next six months offer a good time for fiscal stabilisation. If economic growth can be sustained at levels above 8 per cent, the task of fiscal stabilisation will only become that much easier. Having allowed fiscal parameters to slip in the period 2008-2010, the government must use 2010-11 to recover lost ground and, in fact, move forward. This will also empower the government to act when necessary in case growth slows down for any reason in the future.
It is unfortunate that both retail investors and public sector employees, including Coal India employees, did not take full advantage of the IPO. Perhaps the IPO’s success will encourage some of them to take a less conservative view when other public sector companies enter the market with IPOs. It is, of course, clear that the oversubscription of the Coal India IPO was largely due to the enthusiasm of FIIs and HNIs, both of whom are bullish on India. India’s growth story has made the energy sector an attractive proposition for investment and everyone sees coal remaining an important part of the equation. Equally important is the new sense of confidence in the ability of Indian public sector companies, especially in the energy and infrastructure sector, to deliver good results for investors. A combination of improved PSU management, better performance and robust prospects for growth makes public sector stocks very attractive. This, therefore, is the time for more public sector IPOs. Needless to add, the effectiveness of this strategy of revenue mobilisation depends on the economic and efficient use of the funds mobilised. The government would be well-advised to erect Chinese walls between PSU divestment funds and non-productive public expenditure. With fiscal deficit set to go down, politicians would be tempted to splurge and spend on economically and socially questionable schemes. The prime minister and the finance minister must guard against such populism and use the present opportunity to improve the government’s fiscal health, thereby laying the foundation for sustained growth of over 8-9 per cent in the next decade. The Coal India IPO opens the doors to more sensible fiscal management and more sustainable economic growth. Handled well, this opportunity can fuel growth, keep the capital market buoyant and once again enthuse private retail investors. Admittedly, one swallow does not a summer make. Only sustained good economic management, both at the macro level and in public enterprises, can help gain the confidence of investors.
