The Telegraph
Since 1st March, 1999
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- Selfish short-term interests are posing hurdles to the disinvestment process

The author is director, Rajiv Gandhi Institute for Contemporary Studies, New Delhi

Comparing the reforms process to cutting a narrow path through the Amazon forest, Arun Shourie reportedly said very recently, “You’ve barely cut through 25 yards before the undergrowth and overgrowth surround you.” Shourie should know and it is high time he wrote a book titled, “Ministers and their Misjudgments”. Presumably after he exits from the government. This government has an impeccable track record of getting rid of ministers who deliver — Arun Jaitley, Suresh Prabhu and now, perhaps Shourie. What was there to show on reforms' Law reforms — they end with Jaitley’s exit. Halting steps towards power sector reforms — they end with Prabhu’s exit. Privatization — that will end with Shourie’s possible exit. That just leaves roads, courtesy the national highway development programme.

As for reforms, they are on a road to nowhere. By the way, what were George Fernandes and Murli Manohar Joshi doing at the meeting of the cabinet committee on disinvestment' They are not members. Fernandes, Ram Naik, Pramod Mahajan, Uma Bharati, Shahnawaz Hussain, Joshi, L.K. Advani, Ananth Kumar, S.S. Dhindsa, Jaswant Singh, S. Gurumurthy — that’s a formidable list of people who don’t want privatization.

The finance minister may argue that all that has happened is that the Hindustan Petroleum Corporation Limited and Bharat Petroleum Corporation Limited disinvestment decisions have been deferred by three months. That doesn’t affect the overall thrust of privatization. It is impossible not to take this argument with a pinch of salt. Jaswant Singh may have reservations about HPCL and BPCL and not about privatization per se. But this is not true of most of the others. Dhindsa doesn’t want National Fertilizer Limited to be divested. Similar arguments hold for Uma Bharti and Shahnawaz Hussain. And Ananth Kumar is still peeved over Indian Tourism Development Corporation.

Contrary to what the finance minister might say, the tussle that has been lost (and won) is not about HPCL or BPCL alone. It is about the broader issue of privatization. And by not mediating, the prime minister has sided with the anti-privatization brigade. Is it any surprise that reforms prospects turn bearish and markets take a beating' In a remarkable coincidence, the report of the steering group on foreign direct investments (the N.K. Singh committee) was released on the same day that the CCD met. Perhaps in an attempt at damage control, to persuade the world that all was well with reforms. The world is not that stupid. There is a difference between promises and implementation.

In July, the disinvestment ministry put together an ambitious plan for bringing in Rs 50,000 crore in 2002-03 — about half (Rs 24,800 crore) through strategic sales and the remainder (Rs 26,300 crore) through divesting equity, while retaining government managerial control. This was a mind-boggling figure, given the target of Rs 12,000 crore. There was legitimate scepticism about being able to achieve the non-strategic sales target, especially in 2002-03. But the strategic sales target was achievable, provided the undergrowth and overgrowth could be cleared.

However, Mahajan (Bharat Sanchar Nigam Limited, Mahanagar Telephone Nigam Limited) and Naik (HPCL, BPCL, Oil and Natural Gas Commission, Indian Oil Corporation, Gas Authority of India Limited) control Rs 38,000 crore of Shourie’s promised Rs 50,000 crore. Without their support, you don’t get Rs 50,000 crore. You don’t even get Rs 12,000 crore. Quite clearly, what has been postponed is not just HPCL and BPCL. But also ONGC, IOC, GAIL and perhaps even National Thermal Power Corporation. And contrary to what the anti-privatization brigade may argue, this is not about protecting the country’s interests. Or strategic sectors. Smooth import of crude oil may be a strategic issue. But how on earth is marketing and distribution of petroleum products strategic' If oil is indeed strategic, how on earth did the N.K. Singh committee suggest 100 per cent foreign direct investment for oil refining, exploration, and marketing'

Remember also that the cabinet took a decision in February to privatize HPCL and BPCL. In six months, how did a non-strategic sector turn strategic' Strategic is a deliciously vague expression and suitably interpreted, can cover anything under the sun. Hence, attempts to protect one’s own turf and power (the Ram Naik objective function) masquerade as being in the country’s strategic interests. Is there any validity to the arguments advanced against privatization' Not really. Yes, the strategic sales route has exclusively been used. Whether initial public offers are possible or feasible should really depend on the enterprise and the sector. As Shourie rightly argues, IPOs may have diffused flak against privatization, but they would have reduced valuation. In any case, how many people want public sector unit shares' Profits for monopolies with administered prices mean nothing. In any case, profits should be compared to what an equivalent amount of money would have fetched, had it been invested elsewhere. Measured against this opportunity cost test, the supposed profits disappear. In contrast, sales so far have brought in much more than the face value of shares. Finally, there is the monopoly argument.

This brings one to the “R” word. The HPCL/BPCL tussle seems to be entirely about Reliance, although no one wants to publicly admit this. (No company can bid for both HPCL and BPCL and newspaper reports suggest that Reliance has offered not to bid for either.) If there is a monopoly today (measured by market shares), that doesn’t mean the monopoly will continue tomorrow. The monopoly will break down, unless entry barriers are created through unfair and restrictive business practices. This means that monopolies are best addressed through competition policy instruments. Even if Reliance acquires BPCL, it is doubtful that a monopoly will be created. And even if Reliance does not acquire BPCL, it has enough resources to create its own distribution networks. What does one do about that possible monopoly, if a monopoly is indeed going to be created'

The rationale for the anti-privatization drive lies elsewhere. Beyond the protecting one’s own turf objective, which applies to Mahajan and BSNL and MTNL as well, political games are being played. There is perhaps a post-Advani succession struggle at work. Eliminate Jaitley, M. Venkaiah Naidu and Shourie. If reports are believed, Sushma Swaraj also came close to losing her berth. Fernandes is of course playing his own little games. Perhaps he wants to be No. 3 in the cabinet, as P. Chidambaram has argued in his column. Perhaps he wants to be the prime minister of a third front. (How many prime ministers is this elusive third front going to have' N. Chandrababu Naidu, Jyoti Basu, J. Jayalalithaa')

The apparently paradoxical element in all this is Jaswant Singh’s position. He is in favour of reforms, isn’t he' So why is the finance minister against privatization' Why hasn’t he sided with Shourie' One can accept at face value the Jaswant Singh proposition. He isn’t against privatization per se. But he is against privatizing HPCL and BPCL. What happens to HPCL and BPCL then' Surely, they can’t be merged, as Naik has suggested' Perhaps one will go through an IPO route and the other sold through strategic sales. Sold to whom' Reading between the lines, who does the finance minister want the non-IPO one to be sold to' Evidently, not Reliance. That doesn’t leave too many options. Perhaps to an international bidder, to send the right signals to international investors. Perhaps not an American company, Jaswant Singh is perceived to be too close to the United States of America and that impression needs to be dispelled.

As I said, there aren’t too many options and you can guess the desired outcome. At least, from the finance minister’s point of view. Which still leaves one final question dangling. Why postpone the HPCL/BPCL issue for three months' What will change in three months' The argument that tempers will cool off and there will be time for introspection is neither here nor there. The only clear timeline that one can see is that elections in Gujarat will hopefully be over in three months. And this leaves one with an even murkier question. What has the HPCL/BPCL disinvestment decision got to do with Gujarat' The implied wheeling and dealing suggests a distinctly “agaurav jatra” element to the Indian reforms process. Selfish and myopic short-term interests determine policy decisions, even if they are cloaked in phraseology like national interest, public interest and strategic interest.

Personally, I don’t think Shourie should have written those newspaper articles on ITDC. If the objective was to push through the privatization successfully, those articles have been strategically counter-productive. They have unnecessarily raised people’s hackles. But I think Shourie should write. Because he writes well. That is best ensured through his exit, even though the HPCL/BPCL exit may have question marks. He doesn’t belong in this undergrowth and overgrowth.

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