The Telegraph
Since 1st March, 1999
Email This Page
Reform by stealth
- Disinvestment ought to belong to the domain of public reason

There is a danger that both defenders and opponents of privatization will draw the wrong lesson from the recent Supreme Court judgment halting the sale of two public sector oil companies. Opponents of the judgment dismiss it as yet another example of the judiciary being an obstacle to reform. On this view, the Supreme Court is an institution that is unmindful of the economic costs of its decisions, and impervious to the fact that taking powers away from the executive to privatize without specific legislative approval is as good as killing reforms. Defenders of the decision, on the other hand, see the court as an institution that has finally asserted the rights of Parliament and put a break on a small coterie of liberalizers.

Although an ardent supporter of disinvestment, I have to admit that the legal and constitutional arguments, on balance, support the judgment. The judgment does not imply, as one commentator hyperbolically put it, that public sector companies “cannot even sell raddi without the consent of Parliament”. But the acts facilitating the acquisition of the three original oil companies did require that shares could be transferred only to another government company.

That this may be a product of socialist-era legislation is hardly a constitutional and legal argument. Those who would impugn the judgment on these grounds betray their own impatience with constitutional values. It is true that the Supreme Court has, in recent times, overstepped its own constitutional mandate and often contributed to a good deal of economic obtuseness that Arun Shourie rightly complains of. But this is not sufficient reason to be contemptuous of its all-too-infrequent defence of representative government.

Opponents of the judgment invoke the Balco case as a precedent. But it is a mistaken case to invoke for two reasons. First, the grounds of the challenge in that case were different. It was whether the interests of the employees had been duly protected. Second, and this is a point most commentators seem to have missed, even in the Balco case the court had taken note of the fact that a motion that “this house disapproves of the proposed disinvestments of Bharat Aluminum Company” was defeated in the Lok Sabha on March 1, 2001. In other words, Balco also had the imprimatur of parliamentary approval behind it.

This fact about the circumstances leading up to the privatization of Balco, brings out the peculiarity of the present conjuncture. Neither the defenders, nor the opponents of the privatization of state-owned companies want to face a genuine parliamentary debate. Nothing stopped the opponents of disinvestment from bringing a motion to the floor of the house as was done in the case of Balco. The ruling party, at least, had a reason to fear Parliament. It could not count on its ability to carry the Rajya Sabha. But that very fact should have prompted opponents of disinvestment to use Parliament more effectively to canvas opposition to disinvestments.

The fact that they did not take parliamentary initiative to block disinvestments suggests two things. First, that the opponents of disinvestments are more interested in stalling it, than they are in publicly defending their positions. Second, they fear Parliament as much as the ruling party does for the simple reason that they will have to take a stand. And taking clear defensible stands is what most parliamentarians seem to fear. We are now, therefore, in this peculiar position of applauding the triumph of Parliament as an institution at a time when parliamentarians, from all political parties, fear Parliament the most.

Economic reform over the last de- cade has involved what the political scientist, Rob Jenkins, called “reform by stealth”, that is, reform by piecemeal executive action that avoided great public debates. No political party has had the political courage or faith in public reason to stand fully behind reform. The Congress speaks in two voices on its own liberalization legacy. Despite the self-created visibility of reformers like Shourie, the Bharatiya Janata Party has also never fully claimed the mandate for reform.

Economic reform of the magnitude that needs to be undertaken requires more than simply an occasional speech. It requires a concerted effort to explain the purpose of reform, to mobilize new coalitions that can be convinced that they will be genuine beneficiaries of reform, and the ruling party has done little of this political groundwork. Reform by stealth suited everybody — they could be for and against reform at the same time.

Debate over reform has been plagued by too many bad arguments. Opponents of disinvestments have hid behind phrases like “public interest” and “strategic sector” without explaining either what these euphemisms mean, or why state companies are the only way of serving these interests. Proponents of disinvestments, because they have had to proceed on a case-by-case basis, have rarely made an argument for the proper sequencing of companies to privatize, or how the resources thus generated can be put to optimal use. The silver lining of the court’s judgment will be that it puts disinvestments squarely where it belongs: in the domain of public reason.

There is a political case for disinvestment. Disinvestment, though not a panacea, represents one aspect of a transformation in the place of government in our lives. Government, at the moment, is a massive concentration of power that promiscuously intervenes as and when it pleases, frames rules to maximize its own rents and powers of patronage, uses taxes inefficiently and spends vast energies on things that are peripheral to bettering our existence. Reorganizing government, to take it out of areas where it does not belong, so that it can better concentrate on areas where it does, ought to be the prime goal of reform.

Disinvestment is one aspect of this aspiration. Imagine how much time and energy is needed to superintend thousands of public sector units; imagine how many opportunities for rent-seeking this panoply of frivolous activities offers to civil servants and politicians. Second, the economy needs credible signals for private initiative. Investors need to be assured that enterprise will not be stifled, curtailed or distorted by a huge government presence. Disinvestment is a way of signalling that government thinking on incentive-distorting interventions in the economy has changed. As a matter of principle it wants to restore the by-now-lost distinction between government and a trading company by getting rid of needless commercial involvement. Third, disinvestment is a way of reorganizing government’s priorities.

It is a pity that the government has used proceeds from disinvestments in a purely technical way: reducing fiscal deficits. Instead, it should have made a social contract that proceeds from disinvestments be used to completely transform and reallocate the government’s budget. It would lead to massively greater spending on two sectors where the government is badly needed: health and education. Imagine the difference between saying: “We need the forty thousand crore from disinvestments to cut fiscal deficit,” and saying, “This forty thousand crore will be earmarked, above existing allocations, to ensure that every child, but especially those from deprived communities such as Dalits, will have access to health and education.” This would be a hard gambit to say no to. The deficit can be reduced in other areas: frivolous government expenditure, subsidies and so forth.

It is not too optimistic to believe that a political fight will not only be good for representative government but also for the long-run prospects of reform. After all, stealth can only get you so far. It does not have the transformative potential of an open ideological battle.

Email This Page