Balco deal: The real issues - II

This is the second and concluding part of the article published in these columns on March 9.

The decision on disinvestment in Balco marks a significant new broad vision on the positive possibilities of how the Government can distance itself from operational responsibilities in relation even to profit-making enterprises.

As the Finance Minister, Mr. Yashwant Sinha, has stated it, the Vajpayee Government now looks at disinvestment as a whole strategy of withdrawal from a range of industrial activities that are not strictly the domain of the government. The Economic Advisory Council (EAC) had, in fact, urged on such an approach.

The question why a profit-making enterprise such as Balco should at all be made over to a private sector such as Sterlite (to the extent of 51 per cent of the equity) is not difficult to answer in the new policy context.

That apart, the profitability of Balco had remained constricted for years with outdated smelter technology, inadequate supply of ore, dependence for power on the State electricity board in spite of having its captive generation plants and a sick Bidhanbag unit in West Bengal (which had been merged with Balco a few years ago).

Was the company's internal resource generation sufficient to help it modernise its operations? Few analysts would say that Balco with its market share of 21 per cent in primary aluminium in 1996-97 was exactly poised for a big leap.

The Disinvestment Commission, in fact, had concluded that in view of new capacities being built in the domestic market and import liberalisation, Balco should be categorised as a non-core PSE (rather than as a core PSE) for purposes of disinvestment.

In other words, the commission had held the view that the Government could disinvest a major part of its equity through a strategic sale to a partner followed by a public offer in the domestic market within two years.

Defence orientation?

An objection to Balco disinvestment voiced in Parliament recently was on the ground that the company had a ``defence'' significance about it.

The fact is that aluminium and extruded products have versatile applications in diverse areas of the economy including construction, transport and aviation. This is no reason for looking at the Sterlite induction in Balco as a security-related issue.

After all, there are hundreds of industrial units in the country including some SSI units that have defence contracts which do not automatically evoke security concerns.

Besides the woefully low per capita use of aluminium in India (at around 0.5 grams), the stark reality of a consumption pattern lagging far behind that in most developed countries, is what puts the prospects of the industry in positive light.

The Disinvestment Commission found that while at the global level, the electrical sector accounted for only 8 per cent of the total usage of aluminium, in India, it was as high as 34 per cent, (mainly because till 1989, the Aluminium Control Order had reserved 50 per cent of the production for the electrical sector).

Then again, packaging, building and construction are relatively high-aluminium usage sectors at the global level, but these had markedly low levels of consumption in India.

For companies such as Sterlite which can access vast capital resources from global markets, the scope for vertical integration of downstream projects with production of aluminium (supported by captive power projects) is indeed enormous.

Against Constitutional mandate?

The Balco deal is objected to because, among other things, it is seen to be coming in conflict with the Directive Principles of State Policy (DPSP) of the Constitution according to which the State should ensure that there is no concentration of economic power in the hands of a few persons.

It is often forgotten that the controlled economy and the system of planning evolved in this country with little or no Constitutional sanction and that many of the Directive Principles of State Policy including abolition of child labour and universalisation of primary education have remained dead-letters without the citizens having had any enforceable legal rights relating to them.

To say that the transfer of 51 per cent of the Government's equity in Balco to Sterlite will spell a new chapter of monopoly power in the aluminium industry is to ignore that in a highly capital-intensive industry such as aluminium, only a few big players can survive (unlike as in the downstream or application industries).

In an era of global competition, the concept of monopoly defined in terms of installed capacity or domestic market share is evidently anachronistic.

The transparency buzzword

The debate in Parliament on the Balco share transfer has lighted up a new-fangled passion for transparency. While Mr. Arun Shourie, Minister for Disinvestment, has gone to great lengths explaining how the process of share valuation in Balco has been gone through with meticulous non-partisan professional expertise and how competitive bidding has been obtained without any loophole being left for tampering with the system, sections of the Opposition have maintained with more vehemence than credibility that the Government had not been above board.

What more can on expect from a Government than the willingness to let the Comptroller and Auditor General (CAG) audit the entire records regarding the Balco deal? Mr. Shourie may well claim that this is a ``new high'' in transparency for any Government in Independent India.

But the rub is that if CAG audit is going to be sought for every transaction of the Government, accountability will soon substitute for executive decisions and performance.

For all practical purposes, protecting government transactions zealously from unhealthy and unconstitutional influences would be a sufficient expression of transparency without each competitive bid in transactions relating to strategic sale of PSEs being opened, as recently suggested by Mr. G. V. Ramakrishna, former Chairman of the Disinvestment Commission, in the presence of a TV crew! If it became necessary at all, would not a group comprising the Chief Justice of India, the Speaker of the Lok Sabha, the Leader of the Opposition and the Minister concerned, serve the cause better than the paparazzi?

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