Rational Expectations

To be sure, there have been vital breakthroughs. A few days ago the government got chief ministers to commit to introducing Value Added Tax from April 2001, and to levy a basic floor rate of sales tax and to stop sales tax wars from January 2000. Similarly, the Cabinet has cleared pending bills such as those on insurance, as well as new ones such as those on cyber laws as well as to allow trading in derivatives. The government’s commitment to allow free entry to most foreign investment, and so on, are also more than welcome.

What’s disturbing though, is the near-complete lack of progress on what could be called substantive issues, essentially issues relating to cutting subsidies. Thus, while it is clear that continuing subsidies on both LPG and kerosene cost the taxpayer close to Rs 12,000 crore, the government has developed cold feet. In fact, at the Economic Editors Conference recently, Petroleum Minister Ram Naik virtually announced that no action would be taken for at least a few months. Now, with global prices continuing to harden, what Naik is choosing to ignore is that the government will have to hike prices by such a large amount that it may never happen. Subsidies on LPG, for instance, are over Rs 120 a cylinder, and are just a little lower than the actual price paid by the consumer. In the case of kerosene, the subsidy is around Rs 8 per litre, or a little over three times the price kerosene is sold at in the ration shops. Under an earlier Cabinet-approved plan, LPG and kerosene subsidies have to be cut by a third thisyear.

Worse, with the government hard-pressed for funds, it has deferred its plan to set up a dedicated Central Road Fund, to which around Rs 5,000 crore have to be transferred from an oil cess it has been collecting. In his budget Yashwant Sinha had promised that part of this cess would be used only for road-building. At the Economic Editors Conference, Sinha justified this by saying his ministry would still fund all viable road projects. Shorn of the sophistry, this means the government gets Rs 5,000 crore more to blow up.

The news on the disinvestment side is even more depressing. Just a few days after he was sworn in, Finance Minister Yashwant Sinha addressed delegates from the CII, and told them that he was confident of raising Rs 10,000 crore from the disinvestment of a couple of public sector units. And no, he said proudly, he was not going to go in for `cross-holdings’, which is the method used last year to force various oil sector PSUs to buy shares of each other, to contribute Rs 6,500 crore to the government’s disinvestment kitty. This, incidentally, got the stock markets so angry — they didn’t see how IOC buying 10 percent of ONGC’s stake and vice versa would help either that it wiped out a whopping Rs 24,000 crore from the market capitalisation of these firms within a few weeks.

And now, the government has come up with the idea of asking NTPC to completely buy up NHPC for a price of around Rs 4,500 crore. Just like that. Never mind if it doesn’t make any particular sense for NTPC to buy NHPC, never mind that no great analysis has been done to see if there’s any compatibility between the two firms, nor has any study been done to see how their work-forces have to be rationalised, or anything like that. The anno-uncement of this proposed sale was just made casually by power minister Rangarajan Kumaramangalam at the sidelights of an investment seminar in Mumbai a few days ago. While NHPC officials said this was preposterous and that they had never heard of this proposal before, NTPC officials said their board had yet to discuss it. Apart from the fact that the market will probably greet this by knocking off a few thousand crore from NTPC’s valuation, it just shows how casually the government takes its PSUs autonomy — before NTPC’s board has even cleared it, Ranga goes and announcesit.

Just the same way he announced, during his election campaign in Trichy, that BHEL (coincidentally headquartered in Trichy) would get a lucrative NTPC contract even before its board cleared it.

Other schemes the government has up its sleeve, for meeting its disinvestment target, include selling off stand-alone refineries like Madras and Cochin and Bongaigaon and the independent oil marketing IBP to Indian Oil and Bharat Petroleum.

In a very ironic kind of manner, Yashwant Sinha’s stuck to his priniciples of not going in for the discredited `cross-holdings’. The alternative, however, is worse, and could perhaps be called the mother of all cross-holdings, with NTPC just buying over NHPC, or the oil companies buying up other smaller ones. The purpose behind the disinvestment was not just to sell them in order to get funds to run the government or to pay off old loans. This was certainly an important aspect, but an equally important one was to ensure that the Rs 2,00,000 crore the central government has invested in PSUs yields a decent return. Just moving one PSU from one head to another within the government’s overall balance sheet doesn’t help in any way. To borrow from Home Minister’s over-used lexicon, this is pseudo-disinvestment.