The Hindu : `Disinvestment panel's recommendations ignored'

Online edition of India's National Newspaper
Tuesday, Sep 10, 2002

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`Disinvestment panel's recommendations ignored'

By Our Special Correspondent

CHENNAI SEPT. 9. The disinvestment exercise of the Union Government does not command credibility with the public because the Centre had failed to implement the crucial recommendations of the Disinvestment Commission aimed at ensuring that disinvestment led to reform of the public sector and was not a means to reduce budgetary deficits, former chairman of the Commission, G.V.Ramakrishna, said here today.

Addressing a meeting organised by the Institute of Economic Education, he said the Commission's recommendations included creation of a national trust fund from the proceeds of disinvestment. The fund was intended to be used for financing restructuring of targeted units to improve their market valuation when required and to ensure that the resources did not go into the general corpus for reducing the Government's revenue deficits.

Mr. Ramakrishna said that in its 12 reports submitted between 1996 and 1999, the commission had emphasised that Public Sector Enterprises (PSEs) should be freed from the direct control and interference of the administrative ministries concerned if the PSEs' valuation in the market was to improve. This, like many other recommendations, had not been implemented, he added.

"The losses of 122 out of 230 Central public sector undertakings, which totalled Rs. 230 crores in 1991-92, have now mounted to Rs. 3,700 crores. The failure to reduce the losses of the PSEs is one reason why the disinvestment process does not have wide public support", he said. "Inefficient" methods of disinvestment had on the one hand reduced the proceeds to Rs. 18,000 crores from the actual potential which was double that figure, and on the other the Government's inability to account for how the money was spent (except as part of the Centre's overall expenditure) had led to scepticism about the disinvestment programme.

Another recommendation made by the Commission, he said, was that there should be no monopoly arising from disinvestment. In the petroleum sector, the disinvestment of the Indian Petrochemical Corporation Ltd (IPCL) ignored this aspect and favoured the private sector Reliance group that commanded dominance over the refining and downstream products markets.

Also, in the case of 15 "blue chip" (viz, flourishing/profit-making and coveted) PSEs, including the National Thermal Power Corporation (NTPC), Bharat Heavy Electricals (BHEL) and oil companies such as the Bharat Petroleum and the Hindustan Petroleum (the latter two now facing a controversy within the Union Cabinet in the context of disinvestment), the Commission had recommended that disinvestment should be effected in such a manner as to ensure that the shares were held by wide sections of the public and did not rest with large buyers, while the Government, even with a minority holding, could have the "golden" or special share empowering it to interfere if needed in the national interest.

"This method of broadbasing disinvestment has been used in many countries, including Britain, so that the public sector remains the people's sector, while the management is freed from bureaucratic control", Mr. Ramakrishna said.

The Disinvestment Commission had suggested appointing foreign consultants as "global advisors" for disinvestment purposes whenever capital issues (byway of Global Depository Receipts/American Depository Receipts) were to be made abroad as part of disinvestment and not for every case of disinvestment.

It had also recommended valuation methods that took into account the potential earning or cash flows of the PSEs when their assets were properly utilised.

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