India's confused
privatization By Arun Bhattacharjee
NEW DELHI - The zigzag divestiture of India's
government-held businesses is starting to endanger the
program, with the breakneck speed of the sale of some
operations starting to come under a cloud. And with
that, so is the reputation of Arun Shourie, India's
minister for disinvestment, who won the Magsaysay Award
for exposing corruption as a newspaper editor.
Nobody doubts Shourie’s integrity but lots of
critics are questioning the timing and the ham-handed
way the government has gone about selling off its
assets. Even India's Supreme Court, which stopped the
privatization of India's two top revenue generating
companies, Hindustan Petroleum Corp Ltd (HPCL) and
Bharat Petroleum Corp Ltd (BPCL), implicitly questioned
why profitable companies should be hawked.
As
India's private sector has become global, so have many
government companies such as Oil and Natural Co Videsh
(overseas), Indian Railway Construction Co and Engineers
India Ltd, all of which are making money. This is
raising political questions whether the government
should speed up its privatization or do it on a
selective basis. So far the government has not spelt out
a clear policy, continuing to raise controversy despite
the fact that the preponderance of citizens, at least in
urban India, favors divestiture.
The Ministry of
Civil Aviation has now reversed itself on privatization
of the two national carriers, Air India and Indian
Airlines, saying that overseas divestiture, if at all,
would be limited to only 26 percent foreign equity and
that no other international airlines should be allowed
to hold shares. This has forced Singapore Airlines and
Lufthansa to back out of the deal. With an open skies
policy announced by the government, the two losing
national carriers may not have any chance of taking off
at all.
The government now says that the
privatization of the HPCL and BPCL oil companies will
probably take four or five years. The privatization
lobby within the government points out that the delay is
not because of any roadblock or the Supreme Court’s
ruling. They say the decision gave the government an
opportunity to use its golden geese to subsidize cooking
gas and kerosene users before elections.
By
refusing to remove the subsidies on cooking gas and
kerosene, the primary energy sources in India's rural
areas, the government forced HPCL and BPCL to absorb
$2.53 billion (Rs12 billion) in costs before January
state elections. Petroleum Minister Ram Naik, who has
been crossing swords with Shourie, justifies the move,
saying that the oil companies, which posted a $4.84
billion (Rs23 billion) net profit, "would not be any
poorer by maintaining the subsidy".
Although
there is an underlying consensus within the government
as well as the main opposition, the Congress party,
privatization has drawn flak from various quarters,
including Prime Minister Atal Behari Vajpayee’s own
coalition (NDA) because the government failed to prove
that it has used proceeds from the sale of government
units to retire public debt, restructure government-held
units, develop social infrastructure or meet the cost of
voluntary retirements required for re-structuring the
units.
Whether because of inexperience or
unnecessary haste, government’s sale of Hindustan Zinc
at a time when the zinc price at the London Metal
Exchange was at a 65-year low and the country's stock
exchange was in the doldrums did not go well. Many feel
that the government could have got better prices, had it
been more circumspect.
Another faux pas was the
sale of the government-owned Centaur Hotel at Mumbai.
The party that bought the hotel for US$255 million sold
it within a year at US$322 million, a 35 percent rise in
price.
Fear of allegations of government
corruption prevented the Ministry of Disinvestment
officials or other bureaucrats from association with the
valuation of the government-owned units. Many question
the selection of multinational companies for valuation
without involving government bureaucrats and the
ministries as there are glaring allegations of
undervaluation. For one, critics charge that the
evaluations have not taken into account the land value
of the institutions, which reduced the value of the
shares, which were then lapped up by Indian and
multinational companies, the critics say.
The
most critical question that haunts the government is why
profitable units were sold off before money-losers. The
central government owns 236 companies, of which 130 are
profitable, and 106 that aren't. Data from the
government's Department of Public Enterprise show that
between 1991-92 and 2001-02, the total profit of the
winning companies went up by 6.6 times, while the
aggregate loss of the losing companies increased by 3.4
times. Critics point out that the government should have
sold the loss-making companies first and then decide on
the highly profitable oil companies.
Ironically,
privatization, which India calls disinvestment, was
started by Manmohan Singh as finance minister in the
Congress government nearly a decade ago and today is
being continued by the Bhartiya Janata Party’s coalition
government, which opposed the program.
P R Das
Munshi, a member of parliament from the Congress Party
and who rose as a trade union leader, points out that in
2002 government assured the Parliament and the people
that a "Disinvestment Proceeds Fund" would be set up to
finance fresh employment opportunities, investment and
for the retirement of public debt. The fund is yet to be
set up, while the budget deficit has climbed to nearly
80 percent from 57 percent as the government had to
shell out to meet the commitments of small savings.
In the 10 years since privatization began,
government raised $5.252 billion by selling shares of
government-owned companies. However, instead of
investing in the promised areas it has gone into a new
fund, the Consolidated Fund of India to meet government
deficits. According to figures compiled by the country’s
planning commission, the money could have been used for
construction of a million schools and still have left
the government with $1.05 billion.
Munshi says
that workers in India acknowledge that the old system
has changed and they have to live with it. "But they are
yet to be convinced that there will be adequate
compensation for losing jobs and privatization will
create new jobs, and economic growth will provide jobs
for them and their children," Munshi says, adding, "so
far the government has not been able to prove that."
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Nov 12, 2003
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