New Delhi, Oct. 4: The war over disinvestment within the Atal Bihari Vajpayee Cabinet has taken an explosive turn with a new theatre of conflict —letters between ministers — opening up.
Documents with The Telegraph reveal that defence minister George Fernandes in a letter to the Prime Minister had warned that the policy of selling state-owned companies to a strategic investor could spell political disaster, arguing that “the message going out to the people is that our government is selling away the nation’s wealth ... This will hurt us politically”.
The letter was passed on to disinvestment minister Arun Shourie, who was asked to explain his stand succinctly to the Prime Minister. Shourie, a professional journalist turned politician, wrote back a crisp reply in the form of a note which is now with the Prime Minister.
Fernandes had said “most people do not realise the government is only a proxy shareholder in PSUs and it is the money of the people that has created these businesses. Our disinvestment policy should, therefore, be to offer these companies to the public.”
Significantly, he added that the current system of strategic sales tantamounts to “handing over entities created with the wealth of the people to further enrich the already rich”.
The socialist-turned-BJP supporter said that with the selloff of VSNL and Indian Petrochemicals Ltd (IPCL) “we have created monopolies with Tatas and Reliance. Cases of richer becoming richest with people’s money”.
This is the first time that the names of the country’s two largest corporate houses have been spelt out even though there has been a lot of speculation that some elements within the BJP-led government have been openly hostile to the idea of allowing the large private companies to acquire the state-owned companies.
The letter has obviously been written keeping in view the political dynamics of the coming Assembly elections and the general elections slated for 2004-2005 and the National Democratic Alliance’s need to respond to public sentiment against the fast pace of reforms that were being ushered in by the Vajpayee Cabinet.
Fernandes had joined forces with petroleum minister Ram Naik and human resources development minister Murli Manohar Joshi at a Cabinet meeting some time back to torpedo moves to sell off two oil marketing companies. He has been holding meetings with Cabinet colleagues since then to underline his stand against indiscriminate disinvestment.
Shourie, in a cleverly drafted reply, has argued that if shares were sold in market, the corporates with largest war chests would start cornering the stock on the market as had been done in the case of BSES and L&T. “The business houses will gain and tax payers lose,” he said.
Shourie also argued that Indian bourses did not have the depth to buy up the huge quantities of PSU shares that would be offloaded in the market if this advice was followed. “We experienced the inability of the stock market to lift Gas Authority of India Ltd (GAIL) stocks (when) the Cabinet decided to sell 200 million shares of the company.”
Fernandes, on the other hand, said the entire privatisation programme in UK was “to the public at large”. The airlines, steel industry, telecom, automobile and gas and petroleum sectors were privatised by making offerings through the stock markets. “Likewise, I believe, the privatisation of the same sectors in France, including the banking and oil sectors, were to the French public and not through strategic sales. Malaysia, China, South Africa, Spain and Germany have followed suit.”
This is a charge that Shourie, considered a great proponent of free market economics, must have had problems in answering.
Besides, arguing that the Indian stock markets did not have enough depth, he merely argued that “different countries have different models ... our experience is that when shares are sold in the market, they are sold at cheap prices.”
Shourie also had difficulties explaining away another Fernandes attack. The defence minister had also questioned the policy of debarring PSUs from bidding for other PSUs. “Another issue of concern is that even if strategic sales are allowed the PSUs will not be allowed to bid. Even though they are currently buying into or taking control of joint sector companies such as Mangalore Refineries and Haldia Petrochemicals, they are likely to be prohibited from buying into HPCL and BPCL. Strengthening PSUs through strategic amalgation/purchases of each other prior to sales to the public could be a worthwhile route to consider,” he said.
The disinvestment minister riposted that “if a PSU is allowed to bid for another PSU, it would not bring in any change in the management ... the domestic as well as international investors do not view the participation of public sector with enthusiasm as they consider the same as a ploy to consolidate government position and hence, they lose faith in the whole process.”