Hijacking a Fair Bid

The balco privatisation controversy is interesting in that it underscores the games we play in economics and politics. Among political parties, the Congress was the first to talk about large-scale privatisation of the public sector. This is the same party that even today doesn’t fault itself for the 1969 bank nationalisation. It should not, therefore, come as a surprise that Dr Manmohan Singh is vehemently opposed to the privatisation plan of the current government and Ajit Jogi of Chhattisgarh is giving full support to the striking balco workers protesting the 51 per cent purchase by the Sterlite group.

It reminds me of the political shenanigans during the implementation of the Fifth Pay Commission. How many times have you heard experts, politicians and the finance ministers refer to the implementation of the pay hikes following the commission’s report as the singular cause for the increase in government expenditure? They argue that it is this which has led to the bankruptcy in many states. Here was a commission whose members worked very hard, did exemplary research and homework, before coming up with a list of recommendations that balanced economic efficiency with safety nets for disadvantaged labour. Barring P. Chidambaram, who was then the finance minister, every single political party and politician opposed the implementation of the recommendations and are directly responsible for the current fiscal crises in the Centre and the states. And, yet, they move around with impunity decrying the commission for the fiscal mess! If I were a member of that commission, I would have filed suit for defamation.

Many questions have been raised against balco’s privatisation. Press reports suggest some politicians have alleged corruption within the government to ensure that Sterlite won the bid. Others have said that the price obtained is too low, that balco has been undersold. And, of course, there are those who oppose privatisation at price. Being a democracy, these were all debated in Parliament, some erudite, most ridiculous. For instance, it is understandable if someone points out that the price received is low. But the way to point that out is to show there exists a person, or a group, or an organisation, that is willing to pay a higher price. If a parliamentarian is unable to find such a buyer, he, or she, should keep quiet. A more thoughtful person will realise that selling large chunks of India’s larger psus will fetch a lower price than the true market value. This is because the actual valuation of large psus will be very high and, in an imperfect capital market, getting one buyer to organise such large chunks of money has a high transaction cost. The price the buyer is willing to pay will be less by the amount of this cost. But by the combined wisdom of our parliamentarians, and the experts chosen by them, we’ve decided on jargon such as strategic sales and big-ticket privatisations. Any attempt at pointing this out is immediately dismissed as theoretical mumbo-jumbo and gobbledygook.

PSUs are assets owned by the taxpayers and managed by the government. When we talk of corporate governance, we try to ensure that managers maximise the asset value to shareholders. We can ask the same of government, especially when we are not consulted on whether our money should continue to be used up by loss-making units. At least in mismanaged private sector units, we have the option of selling off our shares.

So, what should the government do to privatise the 26 odd psus they have on the anvil? First, they should announce five dates, on each of which 10 per cent of the shares of each of the 26 units will be sold. Each of the units will be sold separately, not bunched together. People can manage their portfolios, of how much of each to own, by themselves. We do not need parliamentarians to tell us. Second, come what may, they should sell the shares on the appointed day. That is to say, they should not look at the sensex to decide when to sell.

THIRD, they should be prepared to get very low prices for the first few shares they sell. That is because, given our parliamentarians, no one believes they will actually sell off 50 per cent of the shares. The fourth 10 per cent will command greater value if buyers are convinced that the fifth 10 per cent will also be sold. This way, small players will buy the first 10 per cent at low values, while larger players will buy the last 10 per cent at higher values. Smaller players can then sell their shares to the larger players at the high value and earn a profit.

Meanwhile, what should we do with balco? It was decided in Parliament that 51 per cent of it should be sold to Sterlite at the mentioned price. Sterlite has paid the price. Politicians supporting the striking workers are going against the highest authority in our democratic set-up. They are breaking the law by inciting those who are holding hostage technicians inside the plant. In this, there’s no difference between these politicians and the ones responsible for hijacking the Indian Airlines plane from Kathmandu. Will Manmohan Singh and the Congress please stand up?

(The author is a professor of economics at isi, Delhi)