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The Rediff Business Interview/Arun Jaitley

'There is a good case to delink divestment from the Budget'

For the first time since liberalisation, the government of India has decided not to bridge its bloating budgetary deficit by targeting public sector units for divestment. Instead it has decided to tackle the prickly issue as a continuous process by setting up the Ministry of Divestment. Arun Jaitley, a lawyer of repute himself, has been given the task by Prime Minister A B Vajpayee, to draw out a convincing case for speeding up the divestment process. In this interview with Mahesh Nair, Jaitley refused to make any policy statement -- the Union Budget is only a month away. Nevertheless, he made it clear how he is going to clear the cobwebs from the divestment programme.

What is the government's policy on divestment?

The policy on divestment has been very clearly stated in the Finance Minister's 98-99 Budget. He had categorically stated that in a generality of cases, barring those in strategic sectors, the policy is to move towards reducing government equity to 26 per cent. In fact, during the Budget he had gone ahead and also used the word privatisation. The government's policy is therefore very clearly spelt out.

What has been done to implement this policy?

The divestment process is being put in place. Let us first concentrate on a larger issue: the case for divestment. You have a large amount of finances blocked in some 241 Public Sector Units. Be it in the form of government equity or loans, the total amount comes to Rs 2.040 trillion.

Compared to this, the yield from the bulk of the PSUs is very little. Also, to sustain that little yield, you have to plough back a large amount. In fact, in the eight-year period from 91-99, to get a Rs 100 billion dividend you had to plough more than Rs 600 billion. Therefore, this whole argument that you are divesting in order to bridge the budgetary deficit is itself wrong. Because what you are ploughing back is far more than what you have got from the sale of the PSU shares! We have got about Rs 182.88 billion in the last eight years against which we have invested about Rs 600 billion. Therefore, that (bridging budgetary deficit) is not the object.

The first object is to see what are the areas the government should get into and get out of. Should the government be in these businesses and the management of these businesses? In a generality of cases, no. Therefore, you have to divest by various procedures.

We have had the Disinvestment Commission which has made about 58 recommendations so far. Some of them have been considered; some of them have already been implemented. I must concede that our processes have been slow. We are still in the process of developing our models of divestment, that is, how and in what manner should we carry the divestment.

The object of divestment is very clear. You must bring in a management that is professional in character. You must get out the government finances which is blocked in these areas. This money should be used in more fruitful areas whether it is to retire public debt or for various developmental activity. Private sector investment must be brought in. The parties that come in must be in a position to bring in technology and finance so as to run these units more professionally. You must also make sure that you have proper systems in place keeping in mind the social concerns of the workers.

We know all this must be done. But why is it not being done?

I think our systems on divestment have worked very slowly. That is why the prime minister considered it appropriate to constitute a separate department, away from the administrative departments, so that it can take an overview and expedite the process. We have just been constituted and are trying to set our systems in place. We will be able to put through at least the cases that have been recommended by the Disinvestment Commission very fast in their places.

Which are these?

Well, there are some cases for strategic sales, some for merely offloading their shares in the stock market depending upon how you want to go about in each particular case…

But shouldn't things like the right pricing be done by professionals? For instance, we start our plans every November since there is a Budget target to be achieved…

No, we are not going to link it to the Budget.

You are not going to link the divestment process to the Budget?

Yes, I am not going to link it to the Budget. For instance, this year we are missing the target. For half of the year we couldn't do anything because of the elections. Therefore, I think there is a good case to delink it from the Budget,

But what about pricing? Shouldn't professionals decide the shares' prices?

Of course. What makes you think that there are no professionals involved? For instance, the first recommendation comes from the Disinvestment Commission -- we are in the process of constituting a new Commission because the term of the earlier one has expired. After this we appoint a global advisor for the divestment. The global advisor determines the best process. Then you consult merchant bankers. So it is not the case that all this is done only in the ministries…

But it takes eight to nine months before the entire process is implemented, by which time the market price has changed drastically!

You are right. Time is of the essence here. And we are conscious of this fact.

But has anything been done about it?

Well, we are trying to put a system in place…it is too early for me to make any disclosure.

You have mentioned the Disinvestment Commission being reconstituted. Are there going to be any changes in its functioning? Will it have more powers?

No, the Disinvestment Commission will continue to be an advisory body because ultimately the responsibility of the sale for whatever happens has to be with an accountable government.

There is some mention that the government may adopt Vijay Kelkar's Special Purpose Vehicle formula to divest. Is it on the anvil?

That's obviously one of the suggestions which is there and could be considered. But so far we have not taken any decision.

But the SPV method implies that the government would still be in the business of owning and running a PSU although indirectly?

Well, as I said, we still have not taken any decision on the SPV as yet.

Has there been anything concrete done to achieve the targets…

I am not going into targets because out of the last eight years, we have not been able to reach the targets for six years! There is no point in getting into a distress situation about reaching the targets because, as I mentioned, there is a good case to delink it from the Budget.

Is there anything that you would be doing different that your predecessors haven't tried before?

Only time will tell. I don't want to make any predictions.

Isn't there any action plan?

You see it is too early. We have just taken over. Writing an article is the easiest thing in the world to do; divestment, comparatively, is a far more difficult thing. Therefore, don't expect me to make pronouncements as if I were just merely writing an article. And I won't say it in order to enable you to write an article!

Okay, let's look at it differently. Where do you think does divestment figure in the government's priority list vis-ŕ-vis boosting economic activity, domestic competition and increasing efficiency in the government sector?

Oh, it is very high in the government's priority list and will become more so. The entire object of divestment is to add to the efficiencies of these units. It is to use the monies blocked in these units for a more constructive purpose. And finally it is to get the private sector into the management of these companies, unless there is a sector where you want the government to continue.

Do you think the political obstacles to achieve these objectives have been removed? Have we reached a stage of consensus now?

The Left parties are certainly not in agreement. The Congress started it, and like in the case of most of its policies, does not know where it stands on the issue now. In the Rajya Sabha they were in favour; in the Lok Sabha they were opposed.

So if the house is divided how will you push through your plans?

If you are doing the right thing, and you are very sure that you are accountable and have the right answers for it, one can achieve what one wants. Merely because the Congress is a divided house in this issue can't dissuade us

Is there any global model which you would like to follow?

We are learning from them. There are a lot of countries that have divested in the past. There are models that have succeeded; there are models which require an improvement. So there is a case that we must learn from these models. But the requirements of every economy is different; the size of the market is different. For instance, in England a large of number of PSUs were able to offload their shares only in the domestic market. Now what is the thicknesss of our market to absorb that? These are some of the factors that we have to consider before we follow any global model.

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