labels: industry - general, economy - general, governance
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Uday Chatterjee
02 February 2003

New Delhi: Last week's Cabinet reshuffle was entirely a Bharatiya Janata Party (BJP)-centric affair and National Democratic Alliance (NDA) allies had no part in the exercise.

The reshuffle was made keeping an eye on the forthcoming elections in nine Indian states this year and the general elections next year. Yet, the composition of the new cabinet is likely to have a major impact on the disinvestment process.

Arun Shourie, who has crusaded against the disinvestment cause, has retained his post as the minister for disinvestment and was also made the minister for telecommunications. Arun Jaitley has been inducted back into the law ministry and is also the minister for commerce.

Retaining Shourie as the disinvestment minister is a clear signal by the government that it is keen to go ahead with disinvestment, even on the face of opposition from members within the BJP and the NDA alliance.

The three most controversial disinvestment topics during the last year have been Hindustan Petroleum Corporation (HPCL)-Bharat Petroleum Corporation (BPCL), Nalco and Air-India. The money coming from these three public sector units (PSUs) put together can bring down the fiscal deficit substantially but the matter is still getting dragged on. Let us examine why disinvestments in these three companies are being stalled.

Coarse voices
Disinvestment of HPCL and BPCL has created the biggest controversy over the last year and at one time it looked as if the process would be stalled forever. The persons strongly against disinvestment of these companies are Petroleum Minister Ram Naik, Defence Minister George Fernandes and HRD Minister Murli Manohar Joshi.

Their common argument was that oil is a critical commodity for the defence of the country and if this sector falls into private hands, the security of the country could be compromised. The second argument was that disinvestment in these companies could create a scenario where monopolies could be created.

There is some merit in both these arguments and the solution to that could be a middle path. On Republic Day, the government dispelled all doubts about disinvestment of these companies and announced that these two companies will be privatised in the following manner:

  • Of the government's existing 51-per cent equity stake in HPCL, 34 per cent will be sold to a strategic partner, 5 per cent to the employees, and the government will retain 12 per cent. Management control will be in the hands of the strategic partner.
  • In the case of BPCL, 35 per cent of the government's existing 51-per cent equity stake will be sold to the public through a combination of domestic and international offerings. The government will retain 26 per cent of the equity.
  • While the government holds 51-per cent equity in these companies, the balance 49 per cent is held by organisations like Life Insurance Corporation, Unit Trust of India, Industrial Development Bank of India and public sector banks, which, for all practical purposes, are government bodies.

The government has, therefore, tried to satisfy all parties: the money from disinvestment will come in, and the management will pass over to more efficient private hands. Naik retains his petroleum ministry, and with the government still having a say in the running of these companies he along with Fernandes and Joshi have no cause for complaint.

Petty politics
Nalco is another profit making PSU that has been up for sale. But Uma Bharati, under whose ministry Nalco functioned, was strongly opposed to the move. The only plausible reason for her opposition to the sale of this company is that she would lose her clout and the perks that go with being the boss of Nalco. With Uma Bharati being drafted for party work, the coast is clear for Nalco's disinvestment.

Air-India is another major PSU that is in the disinvestment list. The problem with A-I is that it makes profits in one year and loses it in another. Minister for Civil Aviation Shahnawaz Hussain is also strongly against the disinvestment of A-I. The reason for his opposition appears to be the same as that of Uma Bharati - protecting one's turf. But, with A-I showing strong results this year, disinvestment of this company in the near future may not be easy.

The appointment of Jaitley as the law minister will also give the disinvestment process a much-needed fillip. All the PSUs are complex in their structure as, apart from being under the government control as legal entities, they are companies, and they come under the purview of the Companies Act.

The Companies Act, we all know, contains innumerable sections and the process of disinvestment can get tied up into legal knots. Jaitley's indisputable legal skills will be of great help in this area. The previous law minister, Jana Krishnamurty, was ailing and was ineffective in handling his department.

The ray of hope
The day after Shourie was sworn in as the telecommunications minister, he sought for a status report from Bharat Sanchar Nigam (BSNL), Mahanagar Telephone Nigam (MTNL) and the Telecom Commission so as to identify the issues that need to be tackled on a priority basis.

Regarding MTNL privatisation, which had been on the agenda of the disinvestment ministry, Shourie refused to comment, although he did mention that it has always been difficult for the government to manage mammoth organisations. From his statement it appears that privatisation of both MTNL as well as BSNL could be on the cards.

There is now a general consensus that apart from sensitive sectors like atomic energy and defence, all business activities are best served when left to the private sector. This was recognised by the Congress government, which kick-started the reforms as well as the disinvestment process. The NDA government has also endorsed this point of view.

The monies coming in from this process will reduce the fiscal deficit while the government can concentrate on more pressing areas like education and healthcare. The progress of disinvestment, however, has been tardy. Just about Rs 15,000 crore have come into the government kitty so far while the amount could have been thrice as much.

We can, therefore, hope that the last week's Cabinet reshuffle, though political in nature, will give a boost to the disinvestment process.

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