The Hindu Business Line : Ownership of equity: A tangled web the Govt weaves

COINCIDENCE or not, the Finance Minister, Mr P. Chidamabaram, spoke of a possible duty cut for small cars just a day before the Government announced its decision to sell off a part of its stake in Maruti Udyog, the joint venture car project with Suzuki.

Thanks to the announcement, it could now be argued, public financial institutions have got the perfect fig leaf for what after all is a command performance — to enter at the Government's bidding and relieve it of the ownership burden.

The Government disposes of its holdings to owners of the right pedigree (public financial institutions) and money flows into the coffers of the Government in a public finance equivalent of a rigged cricket match in the desert kingdom. A happy ending, one might say. Right? Well, not quite.

The fact is, no matter what happens from here on, the Government is boxed into a corner with a case of `damned if you do and damned if you don't'. Consider this. Had the divestment gone through before the Budget incorporated the duty reduction for small cars, it would have created a piquant situation for the Government.

Few would deny that any duty reduction for small cars would greatly benefit Maruti Udyog with its stable of small cars in Maruti 800 and Alto, not to mention the Wagon R, recording big volumes of sale. If a public sector insurance major such as Life Insurance Corporation ends up picking up a stake and the Budget carries the duty reduction that has now been hinted at, people might well wonder if the whole thing was not neatly choreographed by someone at a senior level within the Government who might be expected to be privy to the decision on both the duty reduction and the interest of LIC in the stake sale.

It wouldn't be seen as a case of money going from one pocket to the other. For, bulk of the surplus accruing to LIC from a post-sale duty reduction announcement ends up in the hands of its policyholders, forcing other members of the public to wonder at the sin they have committed by not taking an insurance policy or worse still, with private insurers that have mushroomed in recent times.

It gets no less sticky if the beneficiary of the Government duty largesse turns out to be State Bank of India — another public financial institution of the same pedigree. The consequent windfall on its investment confers benefits not just to the bank's majority stakeholder, the Government in this case, but its minority shareholders as well.

If some of them happen to be close relatives of the senior personalities involved in the decision, then the impropriety the Finance Minister now stands accused of because his wife argued the income-tax department's case before the high court, might seem like a minor traffic offence.

Will the Government escape criticism if the duty reduction for small cars does not materialise when the Budget is unveiled? As it happens, there is no relief for it on that front either. Having made a public announcement of a possible duty reduction, if the Budget makes no mention of it, not only will the Government be guilty of disappointing legions of prospective car owners but may well stand accused of creating a false market in the shares of Maruti Udyog in the interim.

So, you would say, that the Government now has no choice but to go through with the duty reduction. It could not but have made the promise of duty reduction at the time that it did and having made it, cannot be seen as refusing it subsequently.

Well, life for the Government gets a little more complicated than that. If the duty reduction is incorporated, it would be accused of making a public announcement of a tax proposal long before it is placed before Parliament! Shakespeare cautioned the public about weaving a tangled web when they first begin to practise deception. He might well have been talking of the Government when the latter tags on ownership of public traded financial assets such as equity shares to its primary function of administration.

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