Shop Till You Drop

Come now, answer this question, honestly. When the Vajpayee government set up a separate ministry for disinvestment with first-time minister Arun Jaitley at the helm, were you or were you not one of those who wrote it off as yet another high-profile body with a lot of bark and little bite?

And when faced with the double whammy of the 26 per cent disinvestment in Indian Airlines (IA) and the outright sale of Modern Foods, followed by the declaration that the Centre may divest 74 per cent in IA’s sibling Air-India, was your reaction still: "Fine, but let’s just wait a bit more before we decide these guys actually mean business"?

Were you watching when Jaitley decided to make far-reaching policy announcements on a television news show last Friday night?

If you were, you would agree that the word "disinvestment" would never be the same again for you.

First, the history. Ever since Manmohan Singh entered the word into India’s economic lexicon, very little has been achieved. The Disinvestment Commission submitted some 12 reports and recommended disinvestment in 58 public sector units (PSUS). But progress has been at snail’s pace. In five years, action was initiated in not more than 20 of these. Disinvestment targets, fixed and announced with much fanfare every year during the budget, have never been met. In the first round in 1995-96, the government could manage a pathetic Rs 350 crore against a target of

Rs 7,000 crore. This fiscal, Pranab Sen, advisor, Planning Commission, told Outlook about 30 hours before Jaitley announced his plans: "I don’t see it getting anywhere near the target of Rs 10,000 crore. We would probably hang around the Rs 3,000-crore figure finally."

How things change. Yes, the disinvestment total for 1999-2000 may end up being around Rs 3,000 crore, but there are already indications that the year 2000, as far as the economy goes, would be known as the Year of Disinvestment.

What Jaitley has announced is that the government would firmly push through the privatisation of 56 PSUS in blocks of 15 or 20, as recommended by the Disinvestment Commission. "Instead of selective disinvestment of a few per cent of shares, we must determine the long-term plan of the PSU, whether it should be retained in the public sector or disinvested, either through selling the shares to the public, or through the Global Depository Receipt (GDR) route or through a bidding process to another industrial group," he said.

And he belled the cat squarely when he mentioned that Maruti Udyog Ltd (MUL) was high on his list.

Jaitley, for the first time, said what everyone except the government has acknowledged for years: that if the government wishes to get out of MUL (as it should, since it has no business making cars), it should do so as quickly as possible. With rising competition, especially from the Korean and US entrants, MUL’s marketshare can only head southward, and every month the government delays selling its stake in the company, the share price goes down.

So, does Suzuki Motor Corporation now achieve its long-cherished desire to take unfettered control of MUL? After all, according to the agreement between the government and Suzuki, the latter has the first right of refusal on the government’s shares, any time the state decides to offload.

Jaitley wants to move fast. He plans to get the Indian Airlines, Air-India and Indian Tourism Development Corporation (ITDC) disinvestments through by the end of this financial year (March 31).

Why has disinvestment proceeded at such a halting pace in India? Government sloth-and fear of the trade unions-is not the only reason. A case in point is the failed GDR issues of state-owned companies. Says K.N. Memani, partner, Ernst & Young: "It was both bad luck and bad timing as the global economic climate was stormy. No one could have fetched a good price. The government should have struck when the tide was high." Indeed, PSU shares were being quoted at 40-50 per cent lower than their potential throughout 1998-99. Last year, Gas Authority of India Limited (GAIL) shares were placed at a paltry Rs 70, while it was being quoted around Rs 150 in late 1997. Indian Oil Corporation (IOC) too saw its price scaled down to around Rs 470 per share in 1998 when it was commanding a handsome price of Rs 890 a share in 1997. This issue was finally postponed.

A key problem also has been the unwillingness of politicians to pursue disinvestment seriously, since they can use PSUS for various personal gains. Says Pradeep Baijal, secretary, Disinvestment Commission: "No one was ready to give up the hold over PSUS because it serves many purposes for politicians." Says economist D.H. Pai Panandiker: "There has never been a clear-cut disinvestment policy and the actions have always been ad-hoc. Earlier, it was the cabinet which went on with it, then the United Front government appointed a commission which was given no powers. Without a clear policy, the process will waver."

But the NDA government seems to have decided to make disinvestment the centrepiece of its economic strategy for the year 2000. Stockmarkets across the world are buoyant, the government can get attractive prices for its shares. It has crossed the psychological barrier against offloading majority stake in PSUS.

In a post-budget interview last year, Finance Minister Yashwant Sinha said: "Yes, I will use that word: privatisation." Sense has also dawned that it is better to sell chunks instead of slivers. Says Memani: "Who will pay a good price for piecemeal transactions? Private sector or foreign investors are not interested if they are not assured of control or a change in management even if it is in a bluechip PSU. Now that this is being done you will see the queues getting longer for state-owned companies’ shares."

The key task for the government now is to ensure that the process takes place in as transparent a manner as possible. Says Memani: "If there is no transparency in evaluation of PSUS’ worth, how can a foreign investor be convinced of the price? In India we are still debating over net worth and real estate value while the world has switched to a ‘Discounted-Cash-Flow’ theory in which the future profitability decides current price." Says Pai Panandiker: "There should be a trust consisting of professionals who should be entrusted the job of valuation, tendering and final sale. The ministry can monitor the process."

There will be protests. There will be strikes. The Left will take to the streets. But this government, with a far more stable majority than the five which preceded it, is in a position to carry disinvestment to its logical end if it wants to. And it is showing every sign of intending to do so.