Financial Daily from THE HINDU group of publications
Monday, Sep 09, 2002
Industry & Economy - Disinvestment
Columns - Wide Canvas
Which way disinvestment?
Ranabir Ray Choudhury
THERE is little doubt now that the experiment begun with official disinvestment in public sector units some years ago, albeit with little success till very recently, is at a crossroads. Briefly, if the reforms future for the economy is to be bright, the controversy regarding the sale of Government equity in BPCL and HPCL will be settled in favour of strategic disposal. If otherwise, the `dispute' within the Government on the issue will be settled, say, in favour of the IPO route for one of the companies involved if not for both.
It may be argued that this particular view is difficult to accept because there is every possibility of the reforms effort of the Vajpayee Government succeeding ultimately even if there is no strategic sale of the two units concerned. This may be so, but there can be no doubting the fact that the reform message has already been grievously affected by the currently raging controversy over the disinvestment of the two companies, particularly by the intervention of the Defence Minister who is also the convener of the National Democratic Alliance.
Indeed, seen from the purely economic point of view, an element of the ludicrous has been injected into the whole affair by Mr George Fernandes' intervention in view of the fact that the reform effort has always been one of the principal planks of action of the Vajpayee Government ever since it came into power nearly three years ago.
Since it has always been argued, and rightly so, that the NDA coalition is run on the principle of collective responsibility, the lack of any `intervention' by the Defence Minister till now has led to the public perception that his support for the reform effort has always been there, tacitly or otherwise.
If Mr Fernandes has perforce kept quiet all this time when Mr Vajpayee has agreed to major disinvestment measures (like Maruti and VSNL, among others), then the conclusion must be that he has had no alternative but to shoulder the responsibility for these measures through the `collective' route. If he now feels that he has got to speak out (justifying his action on the ground that past government policy should be `reviewed' from time to time), then he must also admit that should the `review' find that a particular policy has not been the best for the economy he must shoulder the blame for being a part of that policy because of the principle of "collective responsibility'' of the Cabinet.
Returning to the subject of disinvestment of HPCL and BPCL, two specific points have been made which state that the step will not serve the best interests of the nation/national economy.
First, let us take the less important of the two from the point of view of the economy, namely, the `security' argument, the point being made that handing these downstream oil industry units to the private sector would jeopardise the security of the nation because of the crucial importance of oil to national security. There cannot be two views on the importance of the link, but it can certainly be debated whether the Indian corporate sector, or MNCs allowed to operate in the country by the government of the day, will be less patriotic in striving to uphold the best interests of the nation at times of national emergencies.
The short answer to those who feel that the oil sector should be retained under government control on national security grounds is that a detailed review should be made of the oil-security arrangements made by all nations, rich and poor, where the oil industry is not in government hands.
It is only after such a study is made and one, hopefully, has a better understanding of the nitty-gritty of the link between private sector oil companies and the requirements of a strategic national oil reserve that one should take sides in the debate.
Of much more importance from a purely economic point of view is the argument that the creation of sectoral corporate monopolies (in this case through the disinvestment route) will be bad for the economy as a whole and should, therefore, be discouraged.
Clearly, this is a very serious issue, testified to by the huge amount of work that has already been done on the place of monopolies in an economy. This is not the place where a definitive pronouncement can be made on the subject, with particular reference to the disinvestment of HPCL and BPCL, but surely the plea can be made that, whatever the policy adopted by the Government it should be seen to be applied equitably to all players. Among other things, what the Government should expressly avoid is to apply double standards to public sector players in the disinvestment field and their private sector competitors, which would convey (unwittingly though) the impression that there are powerful interests among the powers that be which are backing specific players in the private sector.
A probable remedy here is not to stall the disinvestment of the two companies in question either through the `strategic' route or the IPO method but to prevent certain private sector players from participating in the process just as some public sector oil industry players have been barred from the disinvestment process pertaining to some companies.
Among other things, what this specific methodology will not do is to stall the process of disinvestment, which today has come to be seen as the cutting edge of the reforms process in the country.
If one has to take the side of reform in this specific debate, there is no alternative but to side with the Disinvestment Minister, Mr Arun Shourie, who has been frank enough to admit that the privatisation process has run into a spot.
The problem, of course, is not that there is a hurdle in the way but to make sure that the hurdle is successfully crossed without doing any damage to the ongoing reform programme, on the successful implementation of which will depend the well-being of our descendants.
It is being said that both the Prime Minister and the Deputy Prime Minister are in favour of a consensus among their Ministerial colleagues on the specific issue of the disinvestments route to be adopted for HPCL and BPCL. This is all very good considering that the NDA Government is a coalition outfit where the principle of "collective responsibility" assumes an even more important role than in a one-party Government.
But it is also true that there comes a time when, even in a coalition outfit, the man in the saddle must provide decisive direction, which could mean a lot for the future of the national economy. As far as the disinvestment effort is concerned, that `time' seems to have arrived for the Prime Minister. The question is: Will he take the lead and show the way ahead?
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