To privatise: a free commission

There has been a heated debate on the government’s disinvestment policy. MPs cutting across party lines have demanded policy papers. In...

There has been a heated debate on the government’s disinvestment policy. MPs cutting across party lines have demanded policy papers. In India most Public Sector Undertaking’s (PSUs) have been created under the enabling provision of the Companies Act, which stipulates that if government shareholding is 51 per cent or more, the enterprise becomes a government company, although there are some exceptions like Food Corporation, Warehousing Corporation and others which have been created by specific Acts. The question is, should the approval of parliament be sought before transferring PSUs to private hands.

The logical conclusion of the Delegation of Financial Power Rules of the Ministry of Finance, which laid down guide lines for New Service/New Instrument of Service for taking budgetary approvals, is when a government company is set up with Parliament’s approval, it can be dismantled only with its express approval. However, the government seems to think otherwise. This issue therefore needs to be tested in court, as governments in power in our country, irrespective of the party to which they belong, have a tendency to resist parliamentary supervision.

The courts in India have held that PSUs are ‘State’, within the meaning of Article 12 of the Constitution. When the government is disinvesting its shareholding in a PSU, it is basically shedding its property right. The question is whether it is being done with due process of law. Article 300 A of the Constitution stipulates that no person will be deprived of his property except by the authority of law. How do we interpret the ‘property right of State’? Can the ‘property right of the people of India’ inherent in a government company be shed without the authority of law?

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The constitutional tradition of most advanced democracies provide that privatisation must be approved by Parliament. Much of the problem of privatisation in our country arises due to the fact that the government has no policy framework for privatisation and no strategy of implementing decisions. Every privatisation is an ad hoc exercise. At present the Cabinet Committee on Disinvestment approves each deal including valuation. This blurs the cabinet’s policy-making responsibilities with implementation which is the job of the permanent bureaucracy or technical experts. How is an elected representative— or a member of the generalist IAS which advises him— expected to handle the complexities of a highly technological enterprise in the area of petroleum, mining or aviation. The problem arises largely because of the politicians’ mistrust of parliament as well as the bureaucracy and its desire to concentrate all power in itself.

If the privatisation process has to succeed, it should be put under a consistent, long-term policy framework. The government should secure a broad parliamentary mandate by promulgating a Privatisation Act. The Act should lay down the ground rules for privatisation and provide for a Privatisation Commission as an independent statutory body to handle its implementation. There are several advantages in this. It will represent a concrete statement of explicit political support and commitment to the privatisation process. It will increases accountability of executing agencies as the law will impose basic rules. Parliament and government would thus approve policy issues such as which particular enterprise is to be disinvested as well as the extent of government share-holding, such as whether it should be 49 per cent or 26 per cent or completely disinvested. Such a Commission could also lay down limits on the maximum shareholding for one single group or MNC in order to prevent monopoly control. Share valuation, technique and actual method of selling could be handled by the Commission. Members of the Commission could be appointed on the basis of their expertise in the area of industry, finance and law. To guarantee their independence they should be given a fixed tenure and the same status as that of a High Court judge.

(The writer is former dy. comptroller & auditor general and director, National Institute of Financial Management)