India's Modi taps S$25.6 billion hoard as he chases China

Indian Prime Minister Narendra Modi (right) welcoming Chinese President Xi Jinping at Hyatt Hotel, Ahmedabad, on Sept 17, 2014. -- PHOTO: PRESS INFORMATION BUREAU OF INDIA
Indian Prime Minister Narendra Modi (right) welcoming Chinese President Xi Jinping at Hyatt Hotel, Ahmedabad, on Sept 17, 2014. -- PHOTO: PRESS INFORMATION BUREAU OF INDIA

NEW DELHI (BLOOMBERG) - India is ratcheting up the pressure on state-controlled companies to spend their hoards of cash.

Businesses such as Coal India 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, National Thermal Power Corporation (NTPC), National Mineral Development Corporation (NMDC) and Bharat Heavy Electricals - are sitting on about US$19 billion (S$25.6 billion) of cash and its equivalents, according to exchange filings.

That amounts to 1 per cent 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," Mr Dinesh Kumar Sarraf, the chairman of ONGC, India's biggest energy explorer, said, and that includes an effort to "acquire more assets," he added.

The Statistics Ministry last week revised Indian expansion in the year through March 2014 unexpectedly steeply to 6.9 per cent from 4.7 per cent after changing the method used to work out the data. That gives Mr Modi a platform to take the pace above China, whose economy grew 7.4 percent in 2014, although some economists have questioned the quality of India's data.

Mr Modi is trying to foster spending on projects such as mines and power plants to bolster development. Head of fundamental research at Hyderabad-based Karvy Stock Broking Jagannadham Thunuguntl said that spurring investment by state companies could be a "game changer" in driving economic growth in the next few quarters.

But India has a history of missing spending targets, which could prove an obstacle to the push. Coal India has failed on output goals for at least the past five years partly due to insufficient investment. Some 350 billion rupees (S$7.66 billion) earmarked for buying overseas mines remains mostly unused.

Meanwhile, Indian central bank governor Raghuram Rajan left interest rates unchanged three weeks after an unscheduled cut, signaling that he wants to see PM Modi's first full-year budget before easing further.

Mr Rajan reiterated the need to see further data confirming disinflationary pressures. Observers believe he's watching to see if the PM delivers on promises to narrow the fiscal deficit and boost investment when his government unveils its budget at the end of this month, before lowering the interest rate, which would help boost capital expenditure, crucial for kickstarting the cycle of higher investmen and job creation.

India is the only big emerging market to see total investment as percentage of the economy fall over the past decade, according to the international Monetary Fund. It declined to 32 per cent of GDP last year, compared with a six-percentage-point rise to 48 per cent in China.