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Tuesday, July 31, 2001

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Disinvestment games

By S. Swaminathan

All the fervid debates on the gains and pains of liberalisation over the last ten years, have, almost invariably skirted the central problem of economic restructuring which is that of withdrawal of government from manufacturing activities wherever competitive market mechanisms can deliver better. If the public sector constellation stood for the ``command and control'' economy, the new paradigm would dictate the transfer of public enterprises to the private sector such that competition replaced monopoly power. Ten years down the road, economic reforms in India have hardly made a difference to the sprawling `empire' of the public sector. This despite high-level committees (such as the Rangarajan Committee) advocating disinvestment of government equity down to 26 per cent in the vast majority of enterprises excepting those considered ``strategic'' entities demanding government tutelage.

Ministerial trappings

The United Front Government, in 1997, set up the Disinvestment Commission with a view to securing expert inputs on how to go about disinvesting government stake in as many as 58 enterprises. While the Commission did undertake a thorough examination of the cases referred to it and came up with its own prescriptions, it became common knowledge that there was no political cohesion within the United Front needed to translate the recommendations of the Commission into policy decisions.

Nor was it unknown that the then Chairman of the Disinvestment Commission, Mr. G.V. Ramakrishna kept on pleading for statutory powers on the Commission for ensuring that the process of disinvestment was depoliticised. Two major recommendations of the Commission, namely, that disinvestment ought not to be seen only as the means for augmenting budgetary resources of the Government and that the proceeds of disinvestment ought to be applied towards the strengthening of viable public enterprises and the setting up of a social safety net for the employees affected by restructuring, were simply pooh-poohed by the political establishment.

That there has been very limited advance on disinvestment (with Modern Food Industries and BALCO providing ``adverse'' evidence) over the last four years in spite of successive governments reiterating their understanding of the need for disinvestment is enough indication that dramatic leapfrogging in this area is most unlikely in the foreseeable future.

Verbal heroism to the fore

The BJP-led NDA Government has been long on ``privatisation rhetoric'' and short on delivery. Unlike the Congress party in Opposition, which has virtually disowned the cause (arguing feebly that profit-making public enterprises do not come under its vision of disinvestment), the BJP leadership has at least verbally pronounced itself in favour not merely of disinvestment but of privatisation, a point which found expression in the budget speech of the Union Finance Minister, Mr. Yashwant Sinha, last February.

Did the NDA Government move decisively with its preferred policy? ``Yes indeed,'' the apologists would say. Has not this Government set up a new Ministry of Disinvestment, with a minister in independent charge? Mr. Arun Shourie, the Minister in question, has indeed vigorously articulated the enlarged vision of privatisation.

When the Government was hauled over the coals in connection with the BALCO sale to Sterlite Industries, Mr. Shourie, in a bid to demolish the disinformation launched by the Chief Minister of Chhattisgarh, Mr. Ajit Jogi, went to the extent of referring the whole bidding procedure to the Comptroller and Auditor-General.

Here was a forbidding example of a ``strategic sale'' of a public enterprise being rubbished by the Opposition on the grounds of under-valuation of assets. Nor is it a uniquely Indian experience. At the height of the Thatcherite ``blitzkrieg'' of privatisation in the U.K., the question that repeatedly cropped up was about ``the family silver being sold for a song.'' The two rival schools of valuation of public enterprises - the ``going concern'' approach and the ``replacement cost'' approach - rarely converge and that is what makes public sector disinvestment such a politically explosive affair.

A re-incarnated Commission

The Vajpayee Government has recently announced its decision to revive the ``dormant'' Disinvestment Commission. Dr. R. H. Patil who has an unrivalled understanding of the securities market, has been named the new chairman. It is difficult, as yet, to read the signals that the Government may want to send out with regard to disinvestment.

Is it a retreat from the concept of strategic sale or is it a positive indication that disinvestment from now on will be in an ``offloading mode'' of government equity being turned over without fuss to foreign institutional investors, domestic financial institutions and other players in the secondary markets at relatively favourable prices assuming that the markets do spurt soon?

Which is of higher priority for the NDA Government - reaching some semblance of the fiscal target for disinvestment for 2001- 02, of Rs. 12,000 crores or initiating a process of restructuring of public enterprises by freeing them from the apron-strings of the Central ministries?

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