The politics of reform

THE PRIME MINISTER'S strong support for the disinvestment policy is welcome in two ways. First, it re-emphasises the Government's commitment to the pre-set economic reform agenda, of which the public sector sale has been a highly visible part. Second, and even more important, is the political message of the Government deciding to move forward despite well-publicised differences among the Cabinet Ministers. The disinvestment programme like many other facets of economic reform is more a political process than an economic one. A measure of consensus, preferably across the entire political spectrum, is a prerequisite for its successful implementation. Sadly, the public sector sale process, which was notching up important gains recently, hit a roadblock in September. Differences within the ruling coalition rather than from one of the usual sources — opposition politics, trade unions, insufficient response from investors — forced the Government to defer the divestment in the two integrated oil companies, BPCL and HPCL. Entirely to be expected, the chorus of those opposed to outright privatisation has become louder with many more Ministers joining in and a few other planned divestments such as in the aluminium producer, Nalco, suddenly becoming contentious.

Mr. Vajpayee's statement should hopefully mute the voluble controversy and restore a balance in the ensuing debate on divestment. In one sense, the postponement can be a blessing. Now is the time to fine-tune the policy, ahead of the scheduled December meeting of the Cabinet. High up on the agenda ought to be an agreement among Ministers not to air their differences over settled policy issues publicly. Thereafter, it will be equally important to present the official strategy on economic reform including divestment in a proper perspective. If these two basics are met even an inherently controversial process such as public sector disinvestment can move on more smoothly than at any time before.

The objections raised against the oil companies' privatisation touch on the technical aspects of divestment policy and procedures. The crux of the debate is over the extent of government control post-divestment, whether the two well run and profitable oil companies will continue to remain under the government fold. Under the plan prepared by the Disinvestment Ministry, the two companies were to be sold to a strategic partner through a competitive bidding process. The Government's stake will come down drastically in quick time. The political opposition has zeroed in on this aspect of the Government losing control over two companies in the hydrocarbon sector which, even before the current happenings over Iraq, has had a strategic value. The implication is that the private partner, no matter how carefully selected, cannot be expected to be wholly in tune with the country's energy concerns. That argument has a certain emotional and political appeal and was apparently enough to halt what has been the only functioning reform programme. Not all the success achieved in the recent strategic sales under all parameters, including transparency and fiscal, could sway the opposition.

However, the programme has not reached a cul de sac. For, the opposition to the process might in the end have nothing to do with the arcanum of disinvestment. Ram Naik and the other Ministers opposed to privatisation say that they prefer a stage-by-stage dilution of the Government's stake, with the public sector character remaining intact. A way out of the imbroglio is possible. Their commitment to the public sector can be put to the test by seeking to improve the market valuation of the two companies while still under Government control. All factors that have inhibited valuation, such as lack of operational autonomy and stifling parliamentary control, need to be addressed along with the political connotation of the debate over an appropriate method to divest.

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