The Telegraph
Since 1st March, 1999
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Mr Arun Shourie has denied he is going to resign. This does not mean all is well with privatization or that the Hindustan Petroleum Corporation Limited/Bharat Petroleum Corporation Limited episode was a mere blip (that too, for three months), with no implications for the broader issue of disinvestments. The group of ministers on fertilizers met the same day and deferred a decision on the long-term fertilizer policy. The fertilizer minister formally opposed the sale of National Fertilizers Limited, suggesting, in addition to the usual reasons, that the NFL sale cannot be finalized until the long-term fertilizer policy comes into effect. Since the group of ministers has decided that complete decontrol of fertilizers will not happen before April 2006, does that mean that the NFL privatization should be postponed till then' Mr S.S. Dhindsa has written to the prime minister, asking for his intervention to stop the NFL sale. The shipping minister has opposed privatization of the Shipping Corporation of India, and SCI share prices dropped sharply. Both the Samata Party and the Biju Janata Dal are opposed to the privatization of National Aluminium Company and are supporting the consequent bandh. It is remarkable that several National Democratic Alliance allies should adopt positions that are identical to those of the Congress. If one scrutinizes the arguments, they are not specific to HPCL/BPCL, but cover all privatization.

Disinvestment is different from privatization and creeping disinvestments (through sales of equity and without surrendering government managerial control) are preferable to strategic sales. The disinvestment minister may rightly argue that this will reduce valuation (with no great market appetite for public sector unit shares) and prevent efficiency improvements, since constitutional and social sector and other clauses bite as long as government equity is more than 50 per cent. To this, the response is that these provisions can be changed so as to facilitate restructuring before sale. Rather perversely, the opposition draws sustenance from an Eighties recommendation which made restructuring impossible. There is the argument that profit-making enterprises should not be sold. This is a red herring, since opportunity costs of capital are not considered. Add to this the point that strategic enterprises should not be sold, strategic being a vague enough expression to cover everything. These three arguments, taken together, knock the bottom out of the NDA’s privatization drive and are no longer restricted to HPCL/BPCL.

There has to be a white paper. There must be a clear earmarking of disinvestment proceeds through a disinvestment fund and receipts should not merge into the consolidated fund, to be used to finance revenue expenditure. Hence it follows that privatization cannot occur until constitutional and other legal amendments take place. Till that happens, one is stuck with creeping sales of the Congress variety. Consequently, not only do privatization targets disappear, efficiency improvements do not take place. Mr Shourie should resign himself to that.

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