• Investment World
• eWorld
• Catalyst
• Mentor
• Life
• Canvas
• Praxis
• Urban Pulse
• Brand Quest

Raghuvir Srinivasan

Mr Arun Shourie ... Carrying the disinvestment torch.

IT is easily the most controversial part of the reforms process till now. The subject of disinvestment generates passionate arguments from opponents and proponents alike. Opponents say it is nothing but selling off the family silver. Supporters say that the Government has no business being in business and should get out of it.

The strongest votaries of disinvestment are, of course, in the stock market where public sector stocks are now ruling the roost. Indeed, the stock with the highest market capitalisation today is that of a PSU where the government has divested a small percentage of its holding — Oil and Natural Gas Corporation (ONGC). Why then the opposition?

Simply because successive governments have treated disinvestment merely as a tool to raise resources rather than as one designed to restructure the massive public sector.

Originating from trouble

The Chandrasekar Government in the interim Budget of 1991-92 first enunciated disinvestment as a policy. It was a quick-fix idea to raise money for the then severely cash-strapped government.

The Narasimha Rao Government carried this forward and sold small lots of shares in 47 companies, which in itself is a record for the number of companies disinvested in a single year. A sum of Rs 3,038 crore was generated against a target of Rs 2,500 crore making 1991-92 one of only three years in the last 13 when actual receipts exceeded the target.

The process limped along from year to year with different governments setting fancy targets for revenues from disinvestment, only to fail. The first big break came in 1996-97 when VSNL placed GDRs (global depository receipts) in the international market followed by MTNL the next year.

Disinvestment acquired a direction when the last BJP-led Government formulated a clear policy back in 1998-99 deciding that government holding in PSUs will be brought down to 26 per cent.

The Department of Disinvestment (upgraded into a Ministry later) was set up in December 1999 and the concept of strategic sales made its advent soon thereafter. Disinvestment had morphed into privatisation.

Privatisation pangs

The Balco sell-off was really the turning point for the privatisation programme. In a path-breaking judgment that cleared the way for Balco's privatisation, the Supreme Court said that courts cannot and should not interfere with Executive decisions so long as they are based on reason and are not arbitrary. This ensures that political parties do not go to court against every disinvestment decision of the government.

The programme gathered steam then on with some remarkable sell-offs such as CMC, VSNL, IBP, Indian Petrochemicals Corporation (IPCL), Modern Foods and Maruti Udyog.

However, with the failed privatisation of Hindustan Petroleum and Bharat Petroleum, the Government ran into legal problems. The Supreme Court said that since they were created under an Act of Parliament, its approval was necessary for their privatisation.

And there the privatisation wagon rolled to a halt and now awaits the new government, probably after elections.

Some jarring notes

There are a few contentious issues but the biggest is the usage of the money raised from the sell-offs. None of the half-dozen governments in the last 13 years was able to resist the temptation of using the proceeds from disinvestment to fill the fiscal deficit.

Almost Rs 31,000 crore was raised in this time and was used to fill the bottomless pit of government finances. And this was despite sage pronouncements by every single government about a Fund to be set up from the proceeds to be used for labour and social welfare! This remains one of the glaring failures of the privatisation programme.

The second issue is privatisation-created monopolies such as IPCL. The company was sold to the Reliance group despite the fact that Reliance even then had more than a 60 per cent share of the market.

The government ignored the Disinvestment Commission's advice against this and today Reliance, inclusive of IPCL, accounts for more than 90 per cent of the capacity and market share in petrochemicals. The government's argument that monopolies don't work in a globalised economy does not hold much water.

Finally, the less-fortunate ones among PSUs such as Scooters India, National Industrial Development Corporation, Hindustan Insecticides, Hindustan Cables and many more are loss-making and there is no clear strategy for these PSUs. Will they be privatised? If so, who will buy them? Finding answers to these will make contentious privatisations such as Balco look like child's play.

Article E-Mail :: Comment :: Syndication

Stories in this Section
Fixed-income investing — Fading glitter of debt

Copyright © 2004, The Hindu Business Line. Republication or redissemination of the contents of this screen are expressly prohibited without the written consent of The Hindu Business Line