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Progress on the disinvestment front

By C. R. L. Narasimhan

The contours of the debate over public sector sale keep changing as also their goals. For now, the progress in India is a step in the right direction.

The Government's decision to move on with the disinvestment in the two integrated oil companies is welcome. It has come exactly three months after it was abruptly halted consequent to the political infighting within the ruling coalition itself. That in turn fuelled a wider debate by reopening the basic premises. It is worth revisiting those controversies if only to find out whether (a) they had any substance at all and (b) whether they have been even partially resolved.

The programme had reached a decisive stage in October when the fate of the two companies — Hindustan Petroleum Corporation Ltd. and Bharat Petroleum Corporation Ltd. — was to be taken up. The Disinvestment Ministry had been contemplating a strategic sale for them. A few ministers in the Union Cabinet — apart from the Petroleum Minister, Ram Naik and the Defence Minister, George Fernandes — protested on the ground that the two companies are in a "strategic'' sector and therefore their ownership aspects that are central to the programme ought to matter especially at a time when there has been so much uncertainty over Iraq. The Disinvestment Ministry that had been working on the strategies for a while did not get the necessary political support. On the contrary, the opposition to the programme, originally confined to the two oil companies expanded to include other public sector enterprises lined up for disinvestment. Inevitably, other reasons were cited to oppose the programme conceptually.

It is clear that the resolution of the major controversy — over the oil companies — could only have arisen through a compromise. On what was projected as the single most important point against — the opposition to outright privatisation of HPCL and BPCL — the Government has chosen a middle route by deciding in favour of a strategic sale for HPCL. The Government's stake in BPCL will be offloaded through the IPO route in the share market.

Logically one should ask: has the programme been weakened because of the compromise over the method of sale? Certainly, if the disinvestment programme was seen to be a significant success, it was because of the successful completion of the strategic sales of a number of companies beginning with Modern Foods and ending with Videsh Sanchar Nigam Ltd. earlier this year. In between, companies such as Balco, CMC and IPCL were also sold to private parties. After the favourable Supreme Court verdict in the Balco case, the programme of disinvestment seemed unstoppable. More specifically, the strategic sale route came to be regarded as the only acceptable method for the Government to disinvest. Other routes, notably the capital market route (the method used since 1992 for all rounds of disinvestments) fell so much out of favour that even the espousal of the idea was considered anti-reform.

In short there has been an extreme posturing, a kind of all or nothing statement. It is not the Government alone that has been responsible.

Sections of the financial press, industry-level associations, chambers of commerce made it out as though that any modification of the agenda, even to make it workable, was equivalent to diluting the programme to a point of rendering it irrelevant.

Considering that a programme such as the public sector disinvestment can succeed only on the basis of a consensus (or at the least strive towards it), the aggravated posturing in favour of or against a particular method is most unfortunate. It also renders the recent decision to proceed with the programme less noteworthy than what it actually is.

From a practical standpoint the revival of the disinvestment is an achievement. Never mind as some critics say it is not only compromised but also open ended, that is, without a timeframe.

Other objections relate to the possibility of government companies such as the Oil and Natural Gas Corporation and the Gas Authority of India Ltd. being allowed to bid for HPCL. The Government character will not change, goes the argument. Nor does the exchequer get any "genuine'' receipts if one government company buys into another. This view is again quite extreme and has been doing the rounds since the petrochemical major, IPCL, was put up for sale. (Reliance won in the bidding process).

At the core of the ongoing debate over the future of the disinvestment is the perceived superiority of private over the Government in ownership and control and of course in running a commercial enterprise. That is why the stage-by-stage dilution planned for BPCL is considered inferior to the sale contemplated for HPCL. In fact many protagonists of reform think disinvestment is an anachronistic expression: to emphasise the true reform character one should use the word privatisation, according to them. With so much literature on the subject and an experience of ten years in India and almost 50 years elsewhere it is strange that we should be quibbling over the right vocabulary.

Also, there seems to be no recognition of the fact that no programme, especially one so inherently controversial as the disinvestment will not succeed if it is divested from reality. And the reality in India is that words such as privatisation are still anathema to large sections. However quaint, expressions like disinvestment will help the cause of the programme.

Two other relevant points are: On the technical side, the methods — the strategic sale and the public offer route — have there plus and minus points. It seems theoretical to talk of the superiority of one over the other even in the instant cases of HPCL and BPCL. Much will depend naturally on the ways they are put through. Second, there is no convincing evidence yet — in India and surprisingly in countries such as the U.K. — that privatisation has delivered on all its promises.

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