Modi Taps $19 Billion Hoard as India Chases China Growth

India is ratcheting up the pressure on state-controlled companies to spend their hoards of cash.

Businesses such as Coal India Ltd. have been told to step up outlays on major investments to boost the economy, two government officials with knowledge of the matter said, asking not to be identified as the push isn’t public. The pace of such capital expenditure will be reviewed more frequently, they said.

Five state companies alone -- Coal India, Oil & Natural Gas Corp., NTPC Ltd., NMDC Ltd. and Bharat Heavy Electricals Ltd. -- are sitting on about $19 billion of cash and its equivalents, according to exchange filings. That amounts to 1 percent of Indian gross domestic product, funds that could help Prime Minister Narendra Modi build on last week’s surprisingly sharp upward revision to India’s economic growth.

“The government wants us to invest more,” Dinesh Kumar Sarraf, the chairman of ONGC, India’s biggest energy explorer, said in a Jan. 29 interview from New Delhi. That includes an effort to “acquire more assets,” he said.

Modi is trying to foster spending on projects such as mines and power plants to bolster development.

The Statistics Ministry last week revised Indian expansion in the year through March 2014 unexpectedly steeply to 6.9 percent from 4.7 percent after changing the method used to work out the data.

Chasing China

That gives Modi a platform to take the pace above China, whose economy grew 7.4 percent in 2014, although some economists -- such as Morgan Stanley’s Chetan Ahya -- have questioned the quality of India’s data.

State-controlled companies have been told to explore options such as domestic and overseas asset purchases, joint ventures with other government companies and public-private partnerships to step up investment, the two officials said.

D.S. Malik, a spokesman for the Finance Ministry, didn’t answer a call to his mobile phone seeking comment.

Kulamani Biswal, the finance director of New Delhi-based power generator NTPC, said the company plans “aggressive” investment of about 250 billion rupees ($4 billion) annually for the next five years. Calls to Bharat Heavy and NMDC seeking comment weren’t immediately answered.

Coal India, ONGC, NTPC, NMDC and Bharat Heavy had 1.16 trillion rupees of cash or cash equivalents as of the end of September last year, exchange filings show.

GDP Boost?

The S&P BSE India Public Sector Undertakings index of state businesses rose 49 percent in the past year, compared with a 44 percent gain in the benchmark S&P BSE Sensex.

ONGC jumped as much as 3.3 percent today and closed up 2.7 percent in Mumbai, even as the Sensex slid 0.4 percent. NTPC finished 1.4 percent higher, Bharat Heavy added 1.1 percent, Coal India increased 0.4 percent and NMDC rose 0.1 percent.

Spurring investment by government-controlled companies could be a “game changer as it can unleash a lot of economic activity and trigger a fresh gross domestic product up-tick,” said Jagannadham Thunuguntla, head of fundamental research at Hyderabad-based Karvy Stock Broking Ltd.

State companies will probably be the main driver of a capital expenditure recovery in coming quarters, Deutsche Bank AG economists Taimur Baig and Kaushik Das said in a Jan. 23 report.

At the same time, a history of missed spending targets is an obstacle to that push. Coal India, for instance, has failed on output goals for at least the past five years partly due to insufficient investment. Some 350 billion rupees earmarked for buying overseas mines remains mostly unused.

Dividends

In some cases, it may make more sense for Modi’s eight-month-old government to seek higher dividends from state companies and use the funds in the budget for key investment projects, said Samiran Chakraborty, head of regional research at Standard Chartered Plc in Mumbai.

The administration is targeting about 278 billion rupees in such dividends for the current fiscal year.

An Indian panel set up to resuscitate stalled projects has helped clear roughly $111 billion of them since its inception in June 2013. Some $200 billion still await a green light.

Such approvals, and tackling obstacles including the difficulty of purchasing land, are crucial steps toward an investment revival, Chakraborty said.

India’s central bank today left interest rates unchanged three weeks after an unscheduled cut. Growth expectations should be “tempered,” Governor Raghuram Rajan said in a statement, while adding that an improvement in business confidence has led to a pick-up in new investment intentions.

Coal India will invest in railway tracks and wagons to tap new deposits, and buy machinery to mine deep-lying reserves, its Chairman Sutirtha Bhattacharya said in an interview.

“There’s no doubt we have to beef up capital expenditure,” Bhattacharya said.

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