The mega sale

The Modi sarkar is all set to unleash a privatisation drive that will result in the sale of valuable public assets. The exercise defies economic logic and threatens to undermine a social compact that has endured since Independence.

Inside ONGC'S gas collection, or group gathering, station on the outskirts of Ahmedabad.

THIS Deepavali promises to be unlike any other in recent times. The real “mega sale” will commence soon after the festivities are over, as the gun-slinging salesmen of the Narendra Modi sarkar, which has promised that good times are here like never before, commence the sale of the public’s family silver on a scale never achieved before.

The move recalls a dark legacy of the most controversial phase yet of the Indian privatisation experience, when the National Democratic Alliance (NDA) government under the “moderate” Prime Minister Atal Bihari Vajpayee unleashed a wave of aggressive sale of public undertakings, curiously labelled “strategic” sales, to some of the biggest corporate houses in India. While foreign investors see this as evidence of the Indian government’s eagerness to “do business” with private enterprise, Indian corporates smack their lips at the possibility of bargain-basement prices of these valuable enterprises, which will provide deliverance from the effects of anaemic growth in recent years.

Vacating the commanding heights

On the anvil are some of the key companies that have been at the core of India’s economic prowess since Independence. Among them are the two oil companies, the Oil and Natural Gas Corporation (ONGC), the entity that has pioneered oil exploration in India, and Indian Oil Corporation Limited (IOCL), the company that not only is a key petroleum refiner but has the widest marketing reach of any oil company in India. While the 5 per cent sale of ONGC is expected to fetch Rs.19,000 crore, the timing and schedule of the IOCL sale has not yet been announced. These two are also companies that have, despite the vicissitudes of liberalisation that have chipped away at their status at the commanding heights of the Indian economy, been the sole countervailing force against the power and fury of India’s largest conglomerate, Reliance Industries, in the strategically important oil and gas sector. Interestingly, a key imponderable in the ONGC stake sale pertains to the price of natural gas that Reliance will be allowed to charge, a question on which the government has been dithering. The magnitude of the hike that Reliance will be allowed would boost the ONGC valuation, although that would hardly be comforting to the wider economy.

The government is set to sell 11.36 per cent of its stake in the premier hydel power utility, NHPC Limited, which may yield Rs.3,100 crore. The government will also offload its last residual stakes in the Bharat Aluminium Company (Balco) and Hindustan Zinc Ltd. Both of these were sold to Sterlite (now under the Vedanta Group, which has acquired a reputation for its environmental violations, most famously in Odisha). The two cases rank among the most bitterly controversial episodes in India’s dalliance with privatisation ( Frontline , April 27 and May 11, 2001).

But the fire sale will be kicked off with Coal India Ltd, the largest coal miner in the world and the key supplier to the network of thermal power plants in the country. The sale of Coal India shares is expected to fetch the government about Rs.24,000 crore if the prevailing prices remain at their current levels. The Coal India sale alone will fetch the government what it achieved through disinvestment in 2013-14.

Others in the list include Steel Authority of India Ltd (SAIL), the steel major; GAIL (India) Ltd, the premier gas distribution company; Bharat Heavy Electricals Ltd (BHEL), once a key builder of Indian power stations but which, since liberalisation, has been buffeted by policies that have allowed cheaper imports of power generation equipment; and NTPC Ltd, the biggest Indian power utility. By the end of the current fiscal year, the government plans to sell assets worth Rs.43,425 crore of some of the leading public sector enterprises to a motley bunch of investors who do not even have a semblance of a common interest.

What is a PSU worth?

Actually, “worth” is a meaningless term because, as seen in several earlier cases, the “real” worth of a public enterprise that is valued by the crooked yardstick of the market and its handlers (read investment bank managers, the advisers who will ensure that the price is just right, and all those who will handle the floatation of the shares) is bound to be controversial.

The buyers will be a motley assembly. There will, of course, be the “retail” investor, whatever that means. There will also be large “institutional” investors, both foreign and local. The global investors will not only include large investment banks but overseas pension funds and portfolio investors who are best known for their tunnelled vision of investment horizons. But this is not just a sale for the firangis. Indians, too, will be allowed to join the party. There will be Indian companies, suitably fronted by networks of company structures that will prevent immediate scrutiny, but there would also be Indian financial institutions—private and public—with Life Insurance Corporation (itself a victim of the new dispensation) likely to lead the pack to ensure the protection of “national” glory. In a move that is nothing but a cynical attempt to blunt the edge of resistance of workers in entities such as Coal India, a portion of the sale would be graciously reserved “exclusively” for its workers, who, ironically, are likely to be a prime casualty of the entire exercise.

The street-smart advocates of privatisation argue that the string of sales planned will only “dilute” the extent of government ownership, which will allow the government to retain substantial ownership of these entities. What is the basis of the opposition to privatisation if the government retains at least 51 per cent of the stake in these companies, they ask. Nirmala Sitharaman, Minister of State for Finance (as well as Commerce), in a recent exchange with Sitaram Yechury, Member of Parliament and Polit Bureau member of the Communist Party of India (Marxist), pointed out that the government would continue to receive dividends from these enterprises for the shares it retains. But this not-so-clever argument begs the question in three fundamental ways.

First, the “value” of public enterprises to the government is not just a stock of wealth conferred by the ownership of the assets, but represents a stock of capital, which potentially has the scope of generating returns in perpetuity. The capital stock, because of its very nature, is capable of not just providing “returns” measured in a financial sense, but is endowed with the unique capability of producing other goods over time. Seen from this perspective—which advocates of liberalisation refuse to understand—the value of assets depends on the vagaries and caprices of markets that, in the real world, are never completely “free”. The prescient observation made by the late trade union stalwart and MP Dipankar Mukherjee ( Frontline , July 13, 2012) to this writer comes to mind: “The price [of a public asset] can never be right, no matter how it is arrived at.” The very fact that the asset was “worth it” for the private purchaser meant a loss to the state, he argued.

The second aspect of the argument against the notion that a minority stake makes no difference relates to the fact that the government loses a revenue stream that ownership confers through dividend payments. So, a diminished stake would obviously curtail the possibilities of that revenue stream. Dividend payments to the government by Indian PSUs amounted to more than Rs.1.6 lakh crore, surely not an insignificant amount by any standard.

The third aspect of this intellectually niggardly argument relates to the fact that the overwhelming proportion of the revenues that have been streaming into the coffers of the government since 1991, when disinvestment first began under the stewardship of Manmohan Singh as Finance Minister, has only gone into the general coffers, otherwise termed the Consolidated Fund of India. Remember the solemn promises of the past, that disinvestment proceeds will be used for nobler purposes such as for training workers or for the provision of a “safety net” for workers? The latest avatar of the excuse of disinvestment is that the National Investment Fund, which will collect the proceeds, will make them available to society at large—for health services, education and employment generation. While these objectives are inarguably laudable, what happened to the much more conventional (and socially logical) avenues of raising revenues such as taxing the upper crust? A prominent businessman put this in right perspective to this correspondent some time ago: “Would you sell your house to buy a shirt or pay for your next meal?”

Indeed, there is very little to show in terms of what has been achieved, given the magnitude of proceeds that the government has garnered since 1991. According to the Department of Disinvestment, which, curiously, now functions as a department under the Finance Ministry, the total proceeds amounted to almost Rs.1.53 lakh crore by the end of 2013-14, almost 90 per cent of which came from the sale of minority stake in public enterprises.

One-sided “debate”

But even this begs a central question to the “debate” on privatisation. In the initial days, when the polity was not yet prepared to digest the notion of the unbridled sale of national assets, the argument was that somehow disinvestment would boost “efficiency” in these enterprises. Forgotten in the din was the fact that Indian companies themselves had enjoyed a substantial degree of protectionism (now derided as the licence raj).

Also conveniently forgotten in this babel of arguments was the original purpose of nationalisation and public ownership—that public sector companies were to act not only as vehicles of value generation but play the critical role of acting as a countervailing force against the caprices of private companies. Imagine the consequences of Reliance as the sole enterprise in the petroleum and gas sector, without being challenged by IOCL or ONGC. All one needs to dismiss the portrayal of PSUs as slothful and wasteful entities is to recall the fact that before Modern Industries (established in 1965 and sold in 1997) came, private entrepreneurs in India could not mass produce bread, forget cars.

Surely, there is much that is wrong with public sector companies, but it has mainly to do with how the owner (the government, rather the Indian state) has cynically manipulated them to suit its own agenda. Initially, they were envisaged as key producers of raw materials, industrial intermediates, a wide range of services and even consumer products. (HMT watches come to mind readily, even though HMT’s role as a producer of capital goods is easily forgotten.) Protectionism in this scheme was a prerequisite, given the fragility of Indian private enterprises. Even before privatisation appeared as a policy prescription, the state manipulated the working of these enterprises in order to ensure that they did not fundamentally “harm” private competitors. Officials of Balco (before it was sold off) and the National Aluminium Company (Nalco) have told this correspondent how the introduction of new (and profitable) ranges of products were systematically delayed so that their prime competitor (part of a leading Indian conglomerate) could enhance its own market power. The protestations of even the critics of this economic course that these policies represent a “withdrawal of the state” could not be more wrong. In fact, they mark a decisive assertion of the state in favour of a tiny elite.

If, as the popular cliche goes, politics is the last refuge of the scoundrel, then, surely the sale of public assets for a song must rank as the last refuge of the neoliberal. But a fatalistic approach is not warranted, even if the situation appears genuinely grim. One only has to turn to the United Kingdom to see the now-emerging faint glimmer of hope. Privatisation in Margaret Thatcher-land has caused a backlash, so much so that today there is a serious debate there about “reclaiming” the railways from the capricious private owners (see story on page 24). As the NDA government embarks on Act II of its privatisation drama it may well mean that some national assets will surely be lost, but not all and maybe not for ever, even if that result will not be guaranteed automatically. But for that to materialise, a wider social mobilisation, not just of the workers in these enterprises, will be necessary.