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Points to ponder on STC privatisation

G. Chandrashekhar

MUMBAI, July 16

As part of its larger disinvestment programme, the Centre wants to divest its stake in a number of public sector companies, many of which are loss-making with no hope of a turnaround. Ironically, the list includes even profit-making parastatals such as t he State Trading Corporation of India (STC) and MMTC, the traditional trading arms of the Government.

It makes eminent economic sense for the Government to get out of trading and industrial activity, especially out of loss-making business. There can be no quarrel with the position that the Government must concentrate on discharging its sovereign function s and not get bogged down with running businesses, as business is not its forte.

But there is growing apprehension that in its enthusiasm to raise resources through public sector disinvestment, the Government has included in one broad sweep some politically and commercially important undertakings whose functions go beyond mere tradin g. The role of STC is a case in point.

With winds of liberalisation sweeping the country's economy, restrictions on domestic and foreign trade have been considerably eased. Indeed, soon there may be no negative list of imports and exports, as quantitative restrictions are on the way out. Thes e developments have, admittedly, impacted the core trading activities of organisations such as STC.

But in recent years, STC's role has gone beyond the traditional trading activity, and its extended role has been assigned to it by none else than the Government itself. In particular, the parastatal functions as an official agent of the Government while undertaking crucial activities such as market intervention, buffer stocking, export promotion and import of essential items.

Price support operations that STC has been asked to undertake for tobacco and natural rubber in the context of rapidly falling prices and growers' agitation brings into focus the extended but essential role of the parastatal in recent times.

In addition, the Government has relied on STC's trading wisdom and accumulated experience of decades in the area of international trading _ whether for import of refined palmolein for the public distribution system and import of wheat (as was done 1993-9 4) or for export of tobacco.

Without agents such as STC what will the Government do to address crisis situations that necessarily arise from time-to-time in the agricultural sector? As of date, the Government does not have a fallback position. Will the Government abandon market inte rvention or will it set up another organisation for such activities? Obviously, the policy makers have to think through and come out with a plan before privatising STC.

Scepticism about the rationale for selection of public sector undertakings (PSU) for disinvestment is growing. Some industry experts are accusing the policy makers of non-application of mind in the matter of PSU disinvestment. It appears that in its anxi ety to raise large amounts, the Government is turning a blind eye to the inherent strengths and known utility of some organisations.

One would have expected that in its own interest, the Government would rather retain organisations such as STC for fire fighting operations in the marketplace. It would make eminent commercial sense to make say, the STC a lean and mean organisation, prom ote efficiency and use it as an agent of the State to meet emergent situations. In fact, STC insiders say that a depoliticised, trim and thoroughly professional management can take the organisation to greater heights.

It is unclear if the policy makers have already found an effective alternative to STC for market intervention and such other critical efforts. Indeed, it would be a pity if the decades-old experience and expertise of STC and similar organisations are fri ttered away in a frenzy of privatisation.