The Hindu : Halt to Nalco disinvestment

Online edition of India's National Newspaper
Thursday, Jul 17, 2003

Business

Business

Halt to Nalco disinvestment

By Sushma Ramachandran

NEW DELHI JULY 16. The "stop-go'' policy of the Government on disinvestment is bound to dismay both Indian and foreign investors at a time when FDI inflows into China have touched record levels.

The latest road-block in the way of privatising public sector enterprises is Prime Minister Atal Behari Vajpayee's announcement in Bhubhaneswar that National Aluminium Company (Nalco) disinvestment is being put on hold. "Filhal nahin hoga (it will not be done for the time being),'' he is reported to have said at a public function.

In other words, companies that have spent considerable time and money in preparing bids and evaluating the potential cost of the giant NALCO are now plunged into uncertainty. Clearly, after this announcement, it would be difficult for the Disinvestment Ministry to fix a timeframe for Nalco's strategic sale without consulting the Prime Minister's office. This in turn means the proposed bidders have no way of knowing when the process will be restarted.

Nalco disinvestment has been mired in controversy from the very beginning but this is nothing new since debate and opposition to strategic sale of most leading public sector companies has accompanied the entire process.

This has been true in the case of blue chip corporates such as Maruti Udyog Limited and the Bharat Aluminium Corporation Limited (Balco) as well as the two oil companies, Bharat Petroleum Corporation Limited (BPCL) and Hindustan Petroleum Corporation Limited (HPCL). It had appeared lately, however, that question marks over many aspects of the disinvestment process had been resolved to a large extent. This included issues like the need for privatisation of profit making companies especially after it had been decided to hand over management control to the private sector partner in MUL and opt for strategic sale of HPCL.

Thus the sudden decision to call a halt to Nalco disinvestment is not only unexpected but indicates that the Government is now reluctant to go ahead with economic reforms that may be politically unpalatable.

While this can charitably be attributed to the compulsions of our democratic polity, the hard reality is that such policy shifts tend to unsettle private investors who then prefer to move towards countries with more stable environments.

In this backdrop, the news that China has achieved a record foreign investment inflow of $30 billion for a six-month period shows that India is far behind as a prospective destination for foreign companies.

It is also interesting that the move to halt disinvestment of a major public sector company has been taken soon after the Prime Minister's successful visit to China where the benefits of foreign investment were so well showcased for the visiting delegation. One would have thought the visit would prompt policymakers to accelerate the reforms process rather than slow it down.

It must be recalled that the continuing delays in privatisation of Air India had ultimately led to the withdrawal of Tatas and Singapore Airlines from the fray. In the case of Nalco also many leading foreign and Indian corporates have been preparing for the bidding for quite some time.

They have already had to face a situation when a team from one of the prospective bidders, Hindalco, was roughed up at the plant last year.

There has also been considerable opposition within the State to the privatisation scheme but this had occurred in the case of Balco as well where the Chhattisgarh Chief Minister Ajit Jogi has now entered into an agreement for the company's expansion. In the light of Balco's success story as well as the moves by many chief ministers to sell off state-owned companies, the Centre should try do its best to convince states to go ahead with disinvestment. Otherwise the delay could well lead to a walkout as in the case of Tatas-SIA.

With strategic buyers likely to have the financial muscle to expand capacities and enhance employment opportunities, both Centre and States should thus now view privatisation as an opportunity for economic growth rather than as a political liability.

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