Divestment answer to India's eco concerns: Moody's

The government plan to sell stakes in state-owned enterprises would help it address many of India's existing economic concerns and alleviate the current "fiscal stress", according to Moody's.     

"As the authorities are severely cash-strapped — with large fiscal deficits and public debt in recent years, proceeds from divestment can help to soothe the current fiscal stress," Moody's economy.Com said in a statement.     

Although divestment is not along-term source of funding, it could provide a much-needed relief to the government budget during the extraordinary global downturn that had forced policymakers to increase expenditure to sustain economic momentum, Moody's added.

And the biggest gain may be an improvement in corporate governance.     

"As firms will need to be accountable to shareholders, regular reporting requirements and transparency in business decisions are both likely to strengthen," it said.     

This would enable early detection of business risks and help prevent corporate disasters, which have wide ramifications, including a rise in unemployment, Moody's said.

Stronger disclosure requirements could boost business efficiency as management would monitor more closely their own performance whil the public could easily assess their output.     

To minimise public concerns, the government should maintain majority ownership in firms that are strategically important to the economy, Moody's added.     

On Wednesday, the Finance Ministry said the roadmap for disinvestment in public sector units would be out in the next three-four weeks but there will be no strategic sale.