Financial Daily from THE HINDU group of publications
Monday, Oct 07, 2002
Columns - Wide Canvas
Disinvestment and the FDI debate
Ranabir Ray Choudhury
THE debate on disinvestment of PSUs continues, the only beneficiaries of which are the stock-market players who, not surprisingly, are on their toes to make a killing on the market with every twist and turn of the battle within the Government on the subject. (The latest such example is the alleged profits running into hundreds of crores of rupees made by people who knew beforehand about the outcome of a Cabinet meeting on the disinvestment of the public sector oil companies, HPCL and BPCL. Certainly, the scope for intelligent guessing and brave risk-taking regarding this particular deal cannot be ruled out. But the fact remains that, at the end of the day, some people made a pile, and it is possible that these players knew what would transpire at the Cabinet meeting.)
In the process, the nation has suffered mainly on the ground that a decision as crucial as the disinvestment of PSUs (profitable or otherwise) is still hanging in the balance despite the fact that the indispensability of economic reforms for the future hastening of the growth rate has come to be widely accepted within the country and, secondly, the importance of public sector disinvestment in the reforms process has also been conceded by even the loudest critics of the private sector.
As far as the immediate issue of HPCL and BPCL disinvestment is concerned, as the Petroleum Minister, Mr Ram Naik, has put it, the crux of the issue boils down to two factors: First, should profit-making PSUs be put on the block; and second, should sectors "involved" with the nation's "security" like oil be targets of strategic disinvestment, which really means that after the disinvestment process is complete, the successful private sector bidder takes full control of the company concerned.
Briefly, to take the first point, a comprehensive Government disinvestment policy in a country like India (which has deliberately focussed on the strengthening of the public sector over the first 40 years since Independence) cannot aspire to any level of success in terms of a definite and credible impact on the economy unless it is strategic in nature, that is, not dependent on conditionalities such as profitablity of PSUs, etc. As the world moves into the 21st Century and, in the process, moves further away from the ideologically turbulent 20th Century it is becoming increasingly clear that the principal business of governments all over the world is to govern and facilitate economic growth, not to run businesses on their own. There is simply no reason why India should be an exception to this inexorable progression.
Secondly, the argument that certain economic sectors should be made off-bounds for the private sector on the ground that they enjoy a high security-status is tantamount to holding up the entire governmental system of legal and administrative checks and balances particularly in the field of national security to ridicule. In fact, sectors like oil, domestic civil aviation, defence production and the exploitation of nuclear energy, among others, require to be run as efficiently as possible if the nation's security (and other interests) are to be safeguarded most effectively.
The colour of the ownership of the corporate bodies involved in these sectors is important no doubt (say, in a case where a Pakistani investor is involved), but certainly other ways can be found to tackle this problem given the established fact that private-sector participation will contribute best to the efficiency of the sector involved. Indeed, the check on the "colour" can be easily maintained by an efficient screening process, something which reportedly is already being experimented with by the Government in the field of FDI.
When seen against this perspective, it is unfortunate that the latest controversy over disinvestment should have broken out at all, insult being added to injury with the prospect of a higher contribution of FDI in certain sectors being weakened because of the obscurantist and self-serving attitude of some people who have managed to find for themselves a "piggyback place" in the corridors of power in New Delhi. This is why the Prime Minister, Mr Atal Bihari Vajpayee, should be applauded for opposing the recent bout of "Ministerial opposition" to the disinvestment process in the oil sector, on the ground (as one Samata Party Cabinet Minister put it) that "the rich are getting even richer".
What this Minister has conveniently overlooked ever since he joined the BJP bandwagon some years ago is that he has been supporting an alliance in power (in the position of convener of the NDA) which is headed by a Prime Minister whose party ideology has nothing against the "rich getting richer" concept. In fact, the BJP has always been known to be a party close to the nation's trading community, and one can be assured that this community makes no difference when dealing with the rich and the poor.
In recent weeks, two documents have been publicised which have clearly indicated the need for imparting a greater push to the private sector, on the one hand, and increasing the volume of FDI in the national economy, on the other. The document relating to FDI is, of course, the 116-page report of the Planning Commission Steering Group on the sector which, among other things, has recommended (p. 54) the reduction "to the minimum" of sectoral FDI caps and elimination of "entry barriers". The report adds: "With the exception of `Defence industry', FDI caps can be removed in all manufacturing and mining (activity). Caps can also be eliminated in advertising, private banks and real estate and raised in telecom, civil aviation, DTH/KU broadcasting, insurance and plantations (other than tea)".
As regards the push that needs to be given to the private sector, the Tenth Five-Year Plan Approach Paper says (para 1.4): "An important aspect of the redefinition of strategy that is needed relates to the role of Government. It is now generally recognised that Government in the past tended to take on too many responsibilities, imposing severe strain on its limited financial and administrative capabilities and also stifling individual initiative. An all-pervasive government role may have appeared necessary at a stage where private sector capabilities were undeveloped, but the situation has changed dramatically in this respect. India now has a strong and vibrant private sector. The public sector is much less dominant than it used to be in many critical sectors and its relative position is likely to decline further as government ownership in many existing public sector organisations is expected to decline to a minority."
The Paper adds pointedly: "It is clear that industrial growth in future will depend largely upon the performance of the private sector and our policies must provide an environment which is conducive to such growth."
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