RBI's moves with respect to bonds for oil companies are only a temporary solution to the problem
The bonds did solve some of the cash requirements but that was only for the short-term. The bonds can in no way help bridge the global and Indian retail oil price gap, which is the real problem for these companies. "Issuance of bonds is not a solution to the cash starving oil companies; rather this would further burden the companies and the economy as a whole,” Ashok Jainani, VP, Khandwala Securities Limited had said to B&E. Secondly, the government should not have closed the special window, not at least for now. India is sitting on a huge pile of forex reserve ($297.3 billion for week ended August 15, 2008). In such a case, the RBI could, and should have continue with its special window for some more time. This would not only provide support to oil companies but would also help in curbing the devaluating rupee.
RBI is also planning to issue further bonds of Rs.946 billion. But Jainani feels that is not the only remedy we should be looking at. According to him, "remedies like reduction of duties on oil and sale of strategic interest in PSUs to meet revenue loss, hike in tax rates for corporates, and widen the net to cover hitherto exempted sectors and imposition of oil cess are better options for the government." But then, the government seems to be too focussed on continuing with its ''divine'' intervention policy, which seems to be anything but a blessing.
The bonds did solve some of the cash requirements but that was only for the short-term. The bonds can in no way help bridge the global and Indian retail oil price gap, which is the real problem for these companies. "Issuance of bonds is not a solution to the cash starving oil companies; rather this would further burden the companies and the economy as a whole,” Ashok Jainani, VP, Khandwala Securities Limited had said to B&E. Secondly, the government should not have closed the special window, not at least for now. India is sitting on a huge pile of forex reserve ($297.3 billion for week ended August 15, 2008). In such a case, the RBI could, and should have continue with its special window for some more time. This would not only provide support to oil companies but would also help in curbing the devaluating rupee.
RBI is also planning to issue further bonds of Rs.946 billion. But Jainani feels that is not the only remedy we should be looking at. According to him, "remedies like reduction of duties on oil and sale of strategic interest in PSUs to meet revenue loss, hike in tax rates for corporates, and widen the net to cover hitherto exempted sectors and imposition of oil cess are better options for the government." But then, the government seems to be too focussed on continuing with its ''divine'' intervention policy, which seems to be anything but a blessing.
Source : IIPM Editorial, 2012.
An Initiative of IIPM, Malay Chaudhuri
and Arindam Chaudhuri (Renowned Management Guru and Economist).
and Arindam Chaudhuri (Renowned Management Guru and Economist).
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