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Swadeshi tinge to divestment panel causes worry

Rajesh Ramachandran in New Delhi

Though the decision to constitute the Group of Ministers to oversee the divestment process has been welcomed, the inclusion of Human Resources Development Minister Murli Manohar Joshi in the group is seen as a cause for concern.

Dr Joshi is a known proponent of the swadeshi lobby that seeks protection for domestic industry and resists globalisation of the country's economy.

As the Budget's deficit financing depends heavily on revenue accrued through the sale of public sector units, any attempt to toe the swadeshi line on divestment is being seen as disastrous.

Analysts fear if the government decides to give priority to the domestic private sector to acquire bluechip companies instead of foreign investors, the country would lose precious foreign exchange.

Members of the Disinvestment Commission are optimistic about the government's initiative, as spelt out in the Budget, to sell off equity in the public sector companies.

"Capital will not be a problem," says an insider, "Despite the Moody's downgrading the we are optimistic about the offloading of public sector equity. And we expect it to happen in the global market through global depository receipts. If we make any attempt to hinder the involvement of foreign investors it would seriously affect the foreign capital inflow. Considering the pressure on the rupee, the country can ill afford such a move."

The rupee's depreciation against the dollar would help the government offer the PSU equity on competitive prices on dollar terms and at the same time the government would not have had to compromise itself as the amount of the inflow in rupee terms would be no less than what could be obtained through domestic sales.

"I don't think that the government can ever think of foregoing the GDR option especially when the speculation on rupee is so high," explains Dr S P Gupta, chairman of the Society for Economic and Social Transition, "Now the government's main concern is on how to keep the economic situation stable. From the revenue aspect, nothing much can be expected from expenditure cuts. The only sources of revenue now are divestment, widening of the tax base, NRI investment, and the indirect taxes."

Observers feel that the focus now should be on the implementation of the divestment policy, particularly since the government expects more than Rs 50 billion from the divestment.

The Commission insists that the PSUs should be restructured before any decision on the sale of the equity is made.

No major discussion has been made on the preparation of the PSUs for divestment. No foreign investor would like to spend money on a unit which has almost 50 per cent excess labour. The government also has made no attempt to list abroad those units that it intends to divest from.

However, divesting the companies within the country has its own advantages, though they will have to be packaged attractively even for the domestic market. A major factor against going the GDR way is that it would mean a takeover of the public sector giants by foreign investors.

By divesting in India, the primary market, which have been floundering for a long time, would get a boost with bluechip issues flooding the market.

Interestingly, all members in the Group of Ministers are from the BJP. Though the government is planning to divest heavily in Gas Authority of India Limited and Indian Oil Corporation, Petroleum Minister Vazhapaddi Ramamurthy of the All-India Anna Dravida Munnetra Kazhagam has not been included in the group. Nor has Railway Minister Nitish Kumar of the Samata Party even though Concor, a company which comes under the railway ministry, is up for sale.