Rather than proceed with caution that would seem essential considering the depth of public misgivings involved in the matter of disinvestment drive, the BJP-led government has chosen to accelerate the pace, if necessary by overriding all scruple and detail.
IT has not been infrequent in the recent past for the Union government to fix ambitious annual target figures as the realisation from disinvestment of shares in public sector undertakings. Reality intrudes into these rather extravagant calculations when budgetary figures are revised at the end of the year, to reveal that the sale of shares has not quite reached expectations.
For Union Finance Minister Yashwant Sinha to have aimed for a target of Rs.10,000 crores from PSU disinvestment in 2000-01 was entirely in keeping with practice. When the revised figures were drawn up, the realisation from disinvestment was pegged at a r elatively modest Rs.2,500 crores. However, the backdrop of the controversial Balco deal endowed even this seeming moderation of targets with a certain ominous quality. Adding on the Rs.551 crores realised from the sale of Balco to the modest achievements so far from the privatisation of Modern Food Industries Ltd., the total sum realised from disinvestment in 2000-01 is just over Rs.650 crores. Translated into plain language: the government plans disinvestments of a much larger scale than Balco in the f ew weeks between the presentation of the Budget and the end of the fiscal year.
Expectedly, a furious guessing game in on. The first focus of public attention were the two national air carriers - Indian Airlines and Air-India have been in the news in recent weeks with their quest for a "strategic partner" who will take on a share of their equity capital and the entire responsibility of management. Other units which were considered ripe for the auctioneer's block were the telecom giants - Mahanagar Telephone Nigam Ltd (MTNL) and Videsh Sanchar Nigam Ltd (VSNL). Still another contend er for attention was the car manufacturer, Maruti Udyog Ltd.
But as the speculation raged, a dark horse appeared in the shape of the country's largest urea manufacturer, National Fertilisers Ltd. It is now believed that NFL is going through the final phase of assessment by a number of prospective bidders. Bids are expected to be submitted soon, following which the unit could be delivered into private hands before the fiscal year is out.
The feverish speculation that has shrouded the disinvestment process is itself a commentary on the opaque and rather questionable manner in which public assets built up over decades are being handed over to private control. As an enterprise, NFL dwarfs B alco in the scale of operations. The bids received for it are likely, in this sense, to be of a considerably higher order. Also higher is the probability that a controversy could break out over NFL.
SEEN in this context, the Finance Minister's target of Rs.12,000 crores from disinvestment in 2001-02 perhaps strains credulity. In relative terms, this would mean two sales of the order of the Balco deal every month. If the political heat generated over Balco is any index, then Parliament in 2001-02 will have time for little other than debating the propriety of various disinvestment deals.
A large part of the discord has arisen from the BJP-led government's decision to do away with the Disinvestment Commission, a non-partisan body with expert skills in evaluating the value of PSUs. After setting up a Department of Disinvestment (DoD) in 19 99, the government allowed the Commission's term to expire without nominating a new team. All the reports prepared by the Commission became, in this respect, merely of academic value, since the DoD intended to begin anew and utilise its own parameters to evaluate the PSUs that came within its gaze. And as the case of Balco shows, in the rush for quick results rigour is often the first casualty. The evaluation process for this enterprise, which by any account is endowed with physical assets that would be irreplaceable even at ten times the cost at which it was sold, was completed by a little-known assessor in the period of a week.
As a notion, disinvestment induces a degree of discomfiture among those who believe that prudence is a necessary quality in financial matters. The experience of the United Kingdom in particular has removed some of the stigma attached to the sale of asset s to meet current expenses. But the public welfare implications of the British privatisation drive of the 1980s is by no means a clinched issue. The debate in fact is only beginning anew.
In India, the concept of selling household assets to meet consumption needs is one that is suffused with allusions of ruinous poverty and indigence. This is a deeply ingrained cultural trait which a decade of disinvestment - in theory if not quite so muc h in practice - has done little to dispel. On pragmatic grounds too, there is a credibility gap that the ideologues of privatisation have to overcome. For instance, in 2000-01, the Union government received over Rs.14,000 crores as dividends from underta kings it had a stake in, including commercial banks. By progressively shedding its ownership stakes, the government clearly risks a rapid diminution of this source of revenue, even if its yield is rather modest in relation to taxes collected. And conside ring the fact that the monies realised from the sale of assets would be used to bridge the deficit on the revenue side, the analogy with the indigent household on the path to ruin is complete.
Rather than proceed with the caution that would seem essential considering the depth of public misgivings in the matter, the BJP-led government chose to accelerate the pace of disinvestment, if necessary by overriding all scruple and detail. The politica l backlash now is unlikely to subside any time soon, since the Congress(I), which was among the most ardent proponents of liberal economic policies, seems now to have rediscovered some virtue in the public sector.
Disinvestment was first proposed as far back as 1991-92, ironically enough by Yashwant Sinha during his abbreviated tenure as Finance Minister in the Chandra Shekhar government. The scheme was modest in its scope: to disinvest up to 20 per cent of govern ment equity in certain PSUs in favour of financial or institutional investors. The rationale cited was the need to broad-base ownership, improve management and enhance resource availability.
The belief that diversification of ownership would induce a measure of management efficiency gained further purchase with the following Congress(I) government. A rather more systematic effort was made by the P.V. Narasimha Rao administration to bring PSU equity to the market. But in a concession to political sensitivities, the Congress(I) laid down a number of safeguards. In the first stage, the PSU shares would be sold at an agreed value to public financial institutions, which would then take steps to ensure the listing of these scrips in the country's markets. Any appreciation relative to the initial transacted price would be shared in a fair manner between the government and the shareholder through what is known as a "clawback" agreement.
It later transpired that the financial institutions which had bought the PSU shares had, far from adhering to their part of the deal, clandestinely transferred them to a cabal of stock market operators in Mumbai and Kolkata. Expectedly, there was a polit ical outcry. Following a number of strictures passed by statutory audit authorities, the whole process of disinvestment was soon moved to the back burner.
The next phase in the disinvestment process began in 1996, with the United Front government and the formation of the Disinvestment Comm-ission. Reflecting a delicate political compromise, the U.F.'s Common Minimum Programme undertook to "carefully exami ne withdrawal (of the government) from non-core and non-strategic areas", "to set up a Disinvestment Commission to advise the government", and to ensure transparency in disinvestment decisions while safeguarding job security.
Headed by the veteran administrator G.V. Ramakrishna, the Disinvestment Commission examined the case of 58 PSUs between February 1997 and October 1999. Of these, 29 were notified for strategic sale involving a change in management control, while eight we re earmarked for sale through stock market channels, if necessary culminating in transfer of control. The sale of shares was recommended in respect of five enterprises, while for another 11, a postponement of disinvestment was proposed. In respect of the rest, the Commission recommended closure and final disposal of assets.
A government keen on preserving a semblance of propriety could clearly have utilised this level of expert input. But with powerful interest groups coming into the picture, the Vajpayee government chose to revise the norms entirely. The DoD was set up, o verseen by a Minister of State who in turn would report to a Group of Ministers (GoM) on disinvestment. And concurrently, the concept of "strategic sector" that had earlier been crucial to determining which PSUs should be retained under government contr ol, was jettisoned. This meant that government control in petroleum, telecom and power - vital infrastructural areas which were in addition rich sources of revenue - were to be thrown open for privatisation.
In the bargain, certain crucial functions of the public sector stand to be eroded. The telecom sector illustrates how the objective of curbing the concentration of economic power, for instance, could be undermined. Since cellular telephony became a thriv ing business, the public sector MTNL was restrained from entering this area by judicial intervention and certain rather questionable decisions by the regulatory authorities. But once these hurdles were cleared, MTNL was able to enter the cellular busines s with instantly beneficial results for the consumer. Within a week of the launch of MTNL's cellular service, named Dolphin all private operators were compelled by the pressure of competition, to reduce their tariffs, seemingly with no seriously adverse impact on their profitability levels. If the plan to reduce government holding in MTNL to 26 per cent goes through, it would remove an important check to the growth of monopoly.
Other moves being made by the government to augment the commercial attractiveness of certain PSUs raise questions about the operational relevance of shareholding patterns. Pradeep Phosphates Ltd, India's largest manufacturer of phosphatic fertilizers, is known to be up for strategic sale, with the government planning to bring down its holding to 26 per cent. But since the unit has been suffering commercial losses since 1996-97 - though of declining magnitudes - the government is believed to be working o n a plan to write off its loans and convert a part of the loans into equity. But given these commercial breaks it is conceivable that Paradeep Phosphates would be restored to profitability even without its transfer to private ownership.
The decision to privatise the public sector oil companies has similarly engendered serious reservations. The administrative Ministry made desperate efforts to block the proposal on the grounds that petroleum was a strategic sector where a degree of gover nment control was indispensable. But what should have been a serious public debate became trivialised into a turf battle among different Ministries and the individuals at their helm. The upshot is that the oil companies are soon likely to be put on the b lock, with little preparatory work or debate about the consequences.
Such considerations may not apply in the domain of car manufacture, where Maruti is soon likely to be put up for sale. Neither, in the majority assessment, would hotels and tourism be an area that the government should exert great management control over . But in these areas the problem is with the terms of disinvestment. With the primary and secondary share markets in a slough of despondency, it would be relatively easy for bidders to conclude facile deals in these areas that do little justice to the un derlying value of public assets that they gain control over.
Apart from asset value, the DoD is known to be using the future stream of revenues expected from various PSUs to arrive at a reserve price for disinvestment. But this again is a contingent parameter which could reflect the management neglect and under-in vestment that many PSUs have suffered over the last few years. An alternative may be to factor in the revenue streams that could be generated in an "ideal case" scenario, discounting it by the initial investments needed to make this a reality. Such think ing was conspicuously absent in the Balco decision. And the controversy that has since erupted, best epitomised by the frontal challenge posed by Chattisgarh Chief Minister Ajit Jogi, may only be a foretaste of bitter contention in the year to come.
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