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Tuesday, July 31, 2001

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Disinvestment debates

A FEW RECENT proposals concerning the disinvestment process are administrative in nature and by themselves will not lead to coherence either conceptually or procedurally. Last week, the Government set up a new disinvestment commission almost 20 months after its predecessor was wound up. Another proposal, at the moment it is just that, doing the rounds is to set up a separate Department of Disinvestment, to which the units earmarked for sale will be attached. Presumably such a move will ensure the badly needed coordination with the controlling Ministries. However, in common with many other facets of the disinvestment exercise, it sounds too theoretical and hardly capable of being put into practice. Into the second decade of economic reform, one of its key items - the disinvestment programme - remains torn between what is theoretically correct and what can be put into practice.

Such a divide starts right from the beginning. While it certainly helps to fashion a comprehensive structure to oversee the privatisation programme, there is bound to be a wide disagreement even on basic issues. The first disinvestment commission, set up by the United Front Ministry, was headed by senior bureaucrat Mr. G. V. Ramakrishna. Though it rendered elaborate and well meaning advice, a majority of its recommendations unfortunately could not be implemented. Those who favour a systematic sell-off process want the disinvestment commission to be vested with statutory powers and its term made co-terminus with the overall privatisation process. This suggestion too has not been accepted. While constituting the new commission under the chairmanship of Mr. R. H. Patil, the Government has made it amply clear that like its predecessor it too will have only an advisory role and that the final responsibility will vest with the Government, more specifically with the Minister in charge of Disinvestment, the Cabinet Committee on Disinvestment and the Committee of Secretaries to oversee the process.

Few will disagree with the view that the public sector sale process, now more fashionably called privatisation, is an extremely contentious programme in every other area too. That is only too evident in the tardy progress made all these years and especially in relation to the gross underachievement of the budgetary targets set for the public sector sale process. In fact, even the concept of linking the programme to the annual budget exercise has been faulted for valid reasons. The main point of criticism that the larger interests of the public sector undertakings and the disinvestment programme are sacrificed in the process of trying to bridge the fiscal deficit is valid. In the recent past, such haste was manifest in the Government's extraordinary attempts at book receipts through less than satisfactory means. Cash-rich undertakings were forced to deplete their reserves and buy back shares from the Government or invest in one another - in the name of divestment. For the disinvestment programme, the biggest loss is that no useful precedents have been set. The fracas over Balco, unexpected though it was, could have been minimised if earlier rounds had gone through on certain well-defined economic, political and financial parameters.

Entirely to be expected, therefore, the forthcoming strategic sales of Air India, Indian Airlines, CMC and VSNL - to name only the more high-profile of the identified companies - will continue to be mired in substantial controversies. The progress so far in selling these companies shows that their valuations will be affected because of the delay. Eligible bidders are down to a trickle, to just one in fact in Air India and this might derail the entire process. Further proof, if it is needed at all, that the disinvestment dilemmas are far from over.

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