Politics stalls India's disinvestment efforts
By Indrajit Basu

KOLKATA - Praise has come aplenty to Indian disinvestment minister Arun Shourie over the past few months. An international business magazine called him one of the stars of Asia; an Indian news channel found him to be the best minister in the country; and last week an Indian financial daily adjudged him the businessperson of the year.

And there is little doubt that Shourie deserves these accolades. He brought his government much needed credibility by setting a spanking pace for the disinvestment of state-owned companies, called Public Sector Undertakings (PSUs). There are about 232 state-run firms, almost half money losing, that have a combined net worth of about $33 billion.

While India has struggled to mobilize US$5 billion in cash from disinvestments in the past 10 years, Shourie's rapid-fire divestments efforts saw the country rake in close to $1.4 billion within five months this fiscal, against a $2.3 billion target, and as important he conducted the process with absolute transparency and credibility. But more than this achievement, Shourie managed to stun the country when he unveiled at the end of July a staggering $10 billion cash mobilization plan for the government from divestments of its stake in a clutch of 14 PSUs.

Ten billion dollars of disinvestment in just about six months' time is a mammoth figure, whichever way one looks at it. For one, the amount is four times the current year's disinvestment target of $2.3 billion; and two, it is more than the amount India planned to mobilize in over a decade - but never managed to achieve.

But the magnitude of the target, which skeptics consider "a fantastically ambitious amount", is not by any means the hurdle that Shourie faces. India's more than decade-long privatization program has made painfully slow progress until now solely due to external reasons, such as opposition from political parties, labor groups and the bureaucracy.

But this time round, none of these problems comes into play. Shourie faces a unique hurdle in the form opposition from ministers within his own government. Four high profile ministers from the ruling coalition government in India; the IT and telecommunication minister Pramod Mahajan; the minister for petroleum Ram Naik; defense minister George Fernandes; and the minister for fertilizers and chemicals, S S Dhindsa, have joined hands to scuttle Shourie's plans.

"The disinvestment program has run into a spot, I don't want to hide from that," Shourie acknowledged on Thursday. "The difficulty is that in a fragile and fractured polity and legislature, squalls of this kind can make all the difference," he told a business gathering.

The split within the government over disinvestment has just one core reason: "The current system of strategic sales is tantamount to handing over the entities created with the wealth of the people of India to further enrich the already rich," says Fernandes, who is the leader of the Samata Party, one of the present Bharatiya Janata Party (BJP) government's coalition members.

"I am surprised to learn that the disinvestments ministry now wants to start selling government corporations," said Pramod Mahajan, referring to the two telecom companies, MTNL Ltd and BSNL Ltd, under his control. "There is no proposal before me of any kind to disinvest it," he said, adding, "A holistic view has to be taken. Selling MTNL, which earns money, and BSNL, which bears the burden of the rural sector for the government, will not work."

Unlike Mahajan, Ram Naik, however, has refrained from making a direct comment, but he has been constantly urging the government to categorize state-owned oil companies as "strategic". "The oil sector should be declared strategic since the country's oil security should be at par with its military and economic security and thus should remain under government control," said Naik.

The stated objective of these dissenting ministers is almost the same: make divestments benefit the common Indian, the country's consumers and investors and improve competitiveness and eliminate monopolies. They want these companies to be offered to the citizens of India and not to large multinational companies (such as Shell and Kuwait Petroleum, which are interested in two oil companies; Bharat Petroleum Corp (BPCL) and Hindustan Petroleum Corp Ltd (HPCL), or for that matter, neither to large Indian outfits (such as the Reliance Industries Group that is bidding for the two oil companies as well as the telecom companies) or other state-owned companies (such as ONGC Ltd, which is also keen to grab the two oil companies that together hold 40 percent of the $15-billion domestic oil market.) Offering them to any of the industry giants, they say, would lead to private monopolies.

Although these are the stated reasons of the ministers, their critics say that one has to read between the lines. "Political wrangling over disinvestments has exposed the vested interests of politicians who control these PSUs," said an editorial of India's leading finance daily, The Economic Times. "Given an opportunity all the ministers controlling cash-rich PSUs would like to scuttle their disinvestments. Cash rich PSUs are easy vehicles to provide political and financial patronage. Therefore, politicians find it convenient to milk these cash cows for their own interests. In the process, some PSUs become sick and others lose value over a period. Either way, the nation loses wealth. Yet no one can be held responsible for this colossal waste."

Even as the battle lines remain drawn and the war of attrition is fought between the disinvestments ministry and the opposing ministers, the government seems to be determined to help Shourie to pull his plan through. On Monday, Arun Jaitley, spokesperson of the BJP, said that "the recent disinvestments were a success story of the government and will continue" and requested the dissenting ministers to leave the timing and pricing "to the collective wisdom of the government".

However, the outcome of the tussle will perhaps be known after a meeting of the cabinet committee on disinvestments that is scheduled for September 7. Prime Minister Atal Bihari Vajpayee, his deputy L K Advani and finance minister Jaswant Singh will attend, along with Ram Naik, Arun Shourie, Pramod Mahajan and George Fernandes. Expect some fireworks.

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