Pulled apart by rifts, the UF Government finds it difficult to carry through its disinvestment plans
DESPITE the United Front Government moving fast on its resolve on disinvestment, doubts lurk about the future of the process. Especially due to the experience of past failure, the differences among key players and the opposition from the Left parties which have been threatening dire consequences if disinvestment is carried through.
The Government took its first bold step by putting in place the Disinvestment Commission, in accordance with the promise made in the UF Bible—the Common Minimum Programme (CMP). Now, 40 public sector undertakings (PSUs) have been referred to the commission by the core group of secretaries. But by including bluechip and profit-making units, is the Government ful-filling pledges made in the CMP or following the 1991 Industrial Policy’s basic tenets? Of course, disinvestment could never have been a cakewalk. The Government and the Disinvestment Commission are working under a lot of pressure due to the weight of expectations and because disinvestment is a technically demanding exercise. On the other hand, the CMP has given it little choice of deviating.
The CMP stated that the question of withdrawing the public sector from non-core and non-strategic areas would be carefully examined and any decision to disinvest will be taken and implemented in a transparent manner. While the line is clear on this, experts feel this could be interpreted by the Left parties to mean that there will be no disinvestment in core sectors. And this could lead to further problems as core sector sales are unavoidable considering the targets set for resource collection from this exercise.
The purpose of disinvestment under the Industrial Policy statement of July 1991 was to provide further market discipline to the performance of public enterprises, raise resources, encourage wider public participation and promote greater accountability. It said the need to lay a sound foundation for disinvestment hinged on three major factors: selection of companies to be offered; pricing of the equity on offer; and the logistics of the disinvestment mechanism.
In practice, however, the list of companies offered in the first phase of disinvestment had to be limited to those companies which were, prima facie, such that the investor’s money could appreciate without much difficulty. This time too, despite the promises of not disinvesting profit-making PSUs, the 40 companies referred to the core group include a good number of bluechips. Such as Steel Authority of India Limited (SAIL), Indian Oil Corporation (IOC), Videsh Sanchar Nigam Limited (VSNL), Gas Authority of Indian Limited (GAIL), Oil and Natural Gas Commission (ONGC) and Mahanagar Telephone Nigam Ltd (MTNL).
Other PSUs cleared include Air-India, Indian Tourism Development Corporation (ITDC), Shipping Corporation of India (SCI), Power Grid Corporation, Hindustan Zinc Limited, Hotel Corporation of India, Indian Telephone Industries and National Thermal Power Corporation (NTPC). However, PSUs like Hindustan Engineering Corporation (HEC), Hindustan Machine Tools (HMT) and Braithwaite & Company, which were initially recommended for disinvestment by the commission, were rejected by the core group.
There’s a good deal of pessimism about the outcome of the whole exercise, especially in reference to the Government’s failure to garner the expected resources in its last attempt. The Government expects to net around Rs 5,000 crore from this phase of disinvestment. Going by its past records, this could well be a distant dream. Says the chief executive of a PSU on the disinvestment roster: "In the first round, the Government did not even manage to raise Rs 1,000 crore with a target more than this year’s. This time when the target itself has been scaled down to Rs 5,000 crore, who knows what we will manage finally?" In 1995-96, the Government could lay its hands on only about Rs 357 crore against a total target of Rs 7,000 crore.
Sources in North Block, though, aver that much of the Rs 5,000-crore target will be taken care of by the seven per cent disinvestment in VSNL and the five per cent disinvestment in IOC. With an indicative price of Rs 1,350 per share of VSNL (face value: Rs 10) and Rs 750 per share of IOC (also Rs 10), the Government should be able to garner around Rs 1,500 crore from these sources alone.
HOWEVER, in earmarking these two companies, could the Government have acted in haste? "The announcement on disinvestment has jumped the gun," says CPI(M) politburo member Sita-ram Yechuri. Sources in the petroleum ministry feel the Government should have postponed the IOC disinvestment plans till 1997, especially due to the fact that a good Rs 4,500 crore was still due to it from the Oil Pool Account. This could affect investor sentiment, and plans for a 51 per cent divestment next year.
Adding to the Government’s woes are the high-decibel differences of opinion between the Disinvestment Commission and the core group of secretaries. Ever since it was formed, the commission has been accusing the core group of non-cooperation and saying that the group’s "lackadaisical attitude was totally unwarranted." Till recently, Commission Chairman G.V. Ramakrishna had been vocal in his complaints that the core group had not referred a single PSU to the commission even after a month of its functioning. When the PSUs were referred, the chairman was heard saying the commission would have to work round the clock to work out the criteria for disinvestment as the delay had upset the entire exercise.
The differences between the industry ministry and the commission is another story altogether. While high-profile Industry Minister Murasoli Maran stuck to his stand that the restructuring of the PSUs under the Department of Industrial Development should remain with his ministry, the commission rejected the ministry’s proposal to involve it in the disinvestment process from the first tranche itself.
But the most major worry for the Government could be the opposition from within. From the very beginning, the Left parties have been vehemently opposing any move to disinvest the PSUs, and more so profit-making PSUs. The Left will continue to do so despite the CMP prominently talking about the issue and planning to carry it on, says CPI General Secretary A.B. Bardhan. Says he: "We feel that disinvestment is a motivated move towards privatisation. In the past we have seen that whatever money comes out of disinvestment of PSUs has been utilised to reduce the budget deficit rather than putting it to some productive use. It must also be remembered that disinvestment has taken place only in profitable PSUs which really did not need any such thing. This entire issue needs rethinking before any decision is taken."
The Left feels that the emphasis has to be on reviving and modernising the PSUs rather than on disinvesting or dismantling them. Although the CMP talks of a revival of PSUs and the commission is expected to look into the fate of non-profitable and non-viable PSUs, Bardhan thinks this is a loophole. There is no assurance in the CMP, he says, or by the UF that the commission will not be used as a weapon for privatisation. CPI(M) politburo member Prakash Karat sings a similar tune. "We are not fully satisfied with the present set-up. There is a lot of scope for improvement. We do not support PSU closure. There may be some PSUs which could be put into joint sectors and revived. Others could be discussed. And disinvesting profit-making PSUs, which is being done, is totally against the spirit of the CMP and is unacceptable to us."
While the challenge is clear, the expectations out of the disinvestment exercise has been made more demanding by the Government by its usual practice of imposing multiple and complex objectives: maximising broad-based equity holdings as well as disinvestment revenues which could be mutually incompatible in a narrow and inefficient secondary market, as well as protecting employee interests. And with the Government reiterating its commitment to the CMP against the opposition to the move, it is in for a herculean task ahead.