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| June 29, 1998 |
'PSU divestment is degenerating into a fund-raising exercise'Rediff On The NeT has made arrangements to carry the transcript of the popular television programme Crossfire. We present the fourth of the series, which debates whether foreign insurance companies should be allowed into India. The moderator: well-known economist, Sanjaya Baru.
To discuss this subject, we have with us Mr G V Ramakrishna, chairman of the Disinvestment Commission, and Mr P N Vijay, a well-known financial analyst. Mr GVR, is the Disinvestment Commission a wrong name? Should it have been called The Privatisation Commission? G V Ramakrishna: No, I don't think so. In the Indian context, disinvestment is quite all right. In fact the term is broader than privatisation. You can keep some enterprises in the public sector and yet disinvest some proportion of the shares -- that will be disinvestment. If you go beyond divestment of 51 per cent then it becomes privatisation. So both disinvestment and privatisation are encompassed in the term disinvestment. SB: Vijay, is that right, or is the government fudging the issue? P N Vijay: The government is, I think, sidestepping the major issue. What we thought when all these reforms started was that the public sector wasn't delivering; the return on capital was abysmal. We thought the government would have some sort of policy, not mere adhocism. It would decide which business we would like to be in. What we clearly found was that it was degenerating into a fund-raising exercise. The government needs a bit of money and the Budget had taken some number, so sell a bit of MTNL, or go and sell a bit of BHEL. There was no clear policy! SB: Selling the family silver! GVR, do you agree with that? GVR: I agree. We have said so in our reports. We have said delink the disinvestment process from the budgetary process. Create a separate disinvestment fund. Don't use disinvestment proceeds to meet Budget deficits. SB: So don't you think the problem actually arises out of the fact that you are called the Disinvestment Commission and not the Privatisation Commission. GVR: The problem is not with the name. The problem is with the procedures of government, in taking decisions on our recommendations and implementing those decisions speedily. PNV: I believe the real problem is that the government has no policy on such an important matter. The whole thing is being seen as an adjustment to a budgetary procedure. I think the people of India expect much more. They are happy with some of the PSUs. BHEL recorded fantastic results last year. We don't want to malign the public sector in one broad brush. But there is a lot of muck sitting there. Go into any ITDC hotel and the whole place stinks. Let us not get into privatisation versus disinvestment and be carried away by semantics. What is the government doing about all these things? GVR: In fact, we are giving the government an opportunity to formulate a policy in the recommendations that we have made. We have given the government an opportunity to lay down a strategy for the public sector. We have not taken an ideological view of the public sector, but give them autonomy, build them into strong enterprises. But that can be done to a very few out of the 240 that we have. The others you privatise. Of the 41 recommendations we have made, 24 are cases of strategic sales, where they would go out of the public sector such as aluminium, iron ore, refineries, and copper. SB: A charge has been made that the Disinvestment Commission is nothing but another set of government servants. You are not really market savvy. You should be outside -- in fact, you should not even be sitting inside the finance ministry! PNV: I disagree. The argument being monks never destroy monasteries. I think the whole matter is so sensitive that you need a person who knows the system, to work the system. You need a man who is effective. SB: Vijay, has GVR been effective or not? PNV: Well, it is not for me to answer. What I can say is the Disinvestment Commission has not been taken seriously enough by the powers that be. They are crying for a policy, they have done their homework. At some stage, there is a serious lack of direction in our disinvestment process. I mean we have got only Rs 9 billion from PSU disinvestment so far. Okay, we can blame the stock market for it, but the fact is that there is no policy. SB: GVR, the government does not take you seriously. Do you agree? GVR: I agree with that for two reasons. One is that our recommendation are of two categories -- one general recommendations about strengthening corporate structures, disinvestment fund, voluntary retirement schemes, etc. These have not even been taken to the Cabinet! The second is that we have a series of specific recommendations - which company you would put out on strategic sale, which are the other companies you can keep in the public sector but sell 10,15 or 20 per cent. Only a few of these recommendations have been taken up for decisions for the reason that Vijay has mentioned. They want quick money for the Budget. This kind of sale is based on stock market conditions, not on strategy. But if you adopt the methods of strategic sale, then you are dependent on market conditions. In fact, when market conditions are not good, if you had done your homework on strategic sale, you could have got your Rs 48 billion last year! SB: You could have even revived the markets by putting on block the right companies. GVR: Quite true, but hopefully not for meeting their deficits. You could have created a fund and used the fund for demonstrating to people that you are using it for some larger purpose. SB: Vijay, the Disinvestment Commission has been called a toothless tiger by Mr Ramakrishna himself. Is it the fact that the government wants a tiger without teeth? Are we really walking around in circles here? PNV: Commissions by themselves cannot be tigers. You have to have a will. I think the Commission even if it is doing a very good job can only go up to certain point, put down in paper what is to be done. The rest is up to the government. GVR: In our 7th report, we have said that decision making has been tardy. We have recommended a full-time implementation machinery on government decisions. PNV: That is interesting. You need a committee to ensure that government does what it says it will do. GVR: The recommendations go to the Cabinet. It has to be a political decision. Once a decision comes down where the government agrees to disinvest, strategic sale etc, then there is an implementation machinery, which puts it through. SB: GVR, we said that the Disinvestment Commission resembled a toothless tiger. In fact, your creator, the United Front Government, had further withdrawn your powers. Do you see any hope in the new government? GVR: You see, at no time were we fully empowered. Even in the first resolution of the Commission issued in August 1996, they started out by saying we will implement the whole process, we will set the prices and sell the whole thing. They watered it down in the last paragraph saying that we were an advisory body and would be allowed to monitor and supervise the whole procedure. Then January 10, 1998, the previous government withdrew its earlier resolution, and substituted its statement -- saying that we would be a purely advisory body, giving advice on issues that are referred to us, not on any other issues. PNV: Why did they do that? GVR: You see, we were monitoring and supervising, bringing out various reports about the delays in decision making. PNV: You were saying things that were uncomfortable to them? GVR: Yes, we did say that there was delay in decision-making, a delay in implementation. The UF government probably didn't like it. Don't monitor, don't comment on monitoring, just give your advice and keep quiet, and that too only on those issues which we refer to you, was what they told us to do. In other words the entire list of general recommendations we made were found unacceptable. SB: Do you see hope for yourself with the new government? GVR: I'm hopeful. SB: Are you hopeful, Vijay? PNV: I am also hopeful. I have been reading the manifesto of the BJP in 1991, 1996, and 1998. There is very clear statement on what they want to do with the public sector. GVR: In fact, the term 'Disinvestment Commission' was used for the first time in the BJP manifesto during the 1996 elections! SB: But even they spoke of disinvestment not privatisation, didn't they? GVR: They said a Disinvestment Commission will be set up. SB: But the BJP says that they believe in swadeshi, in Indian enterprise. So do you see the BJP advocating sale of PSU shares only in the domestic market, not elsewhere? GVR: I have no such indication so far. On the other hand, in the commission we have stressed on competition, and every strategic sale should be made on a globally competitive basis in which Indian and foreign firms, and joint ventures between the two can participate. PNV: Sanjaya, you will be surprised that in the last five years among the top 36 traded shares in the BSE, about 8 or 9 of them are in the public sector. And you could add another 10 very easily. So you could have a capital angle to it, you have got a technology upgradation angle to it. I don't think any government, including the BJP, who is serious about it, will say, 'Hey this can go only to an Indian businessman'! SB: Mr Ramakrishna. Do you agree that the objectives of disinvestment are still not very clear? GVR: Well, the objectives are still quite incoherent. They are not very clear what they want to keep in the public sector and what not, I think that is coming in the statements of the present government. They say they will keep a few in the public sector and not in the others. We have been helpful in working out an overall strategy. In many cases, we have said keep it in the public sector. It is not yet ready to be privatised. It has a dominant position in the market, why convert a public monopoly into a private monopoly? But that is only in a few cases. As I said, out of 34 cases, 24 cases are for strategic sale. In only 5 cases, we have said keep it in the Public Sector, but sell 15, 20, 30 per cent. SB: So do you see that happening now with the BJP? PNV: You see, we need a bit of a consensus. SB: Do you think that is possible? GVR: I think it is possible. The spokesman for the BJP was quite positive about handing over some of the PSUs to the private sector. In the composition of this government you have allies from certain states like Andhra Pradesh and Tamil Nadu who are at the forefront of liberalisation in their states. That is a very hopeful sign. SB: On that hopeful note, we have to wind up for this evening. Thank you.
EARLIER CROSSFIRE TRANSCRIPTS:
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Sanjaya Baru: Good evening and welcome to Crossfire, a programme of debate and discussion. The subject this evening: 'Public Sector Disinvestment, Have We Lost Our Way?' Has the public sector disinvestment process merely become a revenue raising process? Is the government not serious about reforming public sector units. Is the Disinvestment Commission a toothless tiger, or even a white elephant like other PSUs.
