Opinion On disinvestment,make haste slowly
The UPAs renewed commitment to disinvestment is significant but it must be bold....
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There is uncertainty about the exit from the stimulus package. The stimulus package to mitigate the consequences of the financial meltdown had two principal components: relief in excise taxes and increased public outlays. This was in addition to the liquidity accommodation through various measures adopted by the Reserve Bank. The current fiscal scenario is unsustainable,but sharp reduction in public outlays and increase in tax rates could impair the recovery process. It is this configuration which makes the revival of the disinvestment programme a key component of our economic strategy.
Over the years,government has rarely been consistent either in its pronouncement or in implementing the disinvestment programme. It commenced in 1991 as part of a bold strategy of economic liberalisation by bundling of shares of public sector companies representing a miniscule part of public equity. This attracted multiple controversies. Limited disinvestment programmes were often resorted to for raising resources. During the NDA regime,a proposal by the then finance minister to restrict public equity to not more than 33 per cent in all public undertakings could not be legislated given the dissent within the NDA,particularly the BJP itself. Front organisations of the BJP regarded this move as excessive in its embrace of new liberalism,as against the larger social purposes that public utilities served. No doubt during the NDA regime some audacious decisions were taken for outright privatisation,and strategic sales were beginning to gather momentum. With the return of the UPA government with the support of the Left parties,privatisation was laid to rest and notwithstanding two companies whose shares were offloaded, disinvestment was put in deep freeze. The present UPA government, particularly the finance minister must be credited for having salvaged this important tool from the deep freeze to announce a robust programme over the next three years. The essence of the programme is to offload 10 per cent of the equity of all public listed companies and to list those which are unlisted and have made continuous profits over the last few years. This itself is an ambitious programme and on the current reckoning could yield a handsome total.
Nonetheless,there are five important questions which remain unanswered. First,while governments elsewhere were acquiring shares of private banks and companies; India was doing the opposite. Factors for this atypical behaviour needed to be explained. The answer is obvious that the contagion effect of the global financial crisis has been limited and our recovery process has begun faster than countries more deeply affected. In the face of rising growth and to ameliorate the harsher consequences of the exit strategy,disinvestment was beneficial.
Second,by confining disinvestment to only 10 per cent,the embedded value in public sector companies could scarcely be realised since investors could see no change in the overall management and therefore,in the productive efficiency of these entities. Another option would be to select a certain smaller group of companies with larger stakes but enable management changes are possible. Some say that this would be a typical case of selling family silver too cheap. Besides,why should investors find these minuscule investments attractive when the management remains intact and they will have no say in the decision-making process? In terms of their opportunity cost of investment,this will receive low priority.
Thirdly,it is well recognised that current market volatility,both global and Indian,will not go away soon. The timing of disinvestment in conditions of high market volatility needs careful orchestration for realising the best value. In-house expertise need to be beefed up by quality independent advice for sounder judgments.
Fourthly,the policy of due diligence for determining reserve price needs to be prioritised. The typical government approach,often called the CPWD approach of the cheapest bidder,may not hold good as this is hardly a case where cheapest is necessarily the best. High quality advice and due diligence are bound to be more expensive given the large sums of money which are involved. This extra cost must be accepted and happily borne in the public interest.
Fifthly,unveiling the disinvestment strategy prematurely can lead to premature speculation and avoidable complexities. The selection process and the logic of sequencing needs transparency and rational public explanation.
Finally,incrementalism in disinvestment is tantamount to action by stealth. The 13th Finance Commission has reportedly estimated that the value of all PSUs could be $400 billion or more (even 40 per cent of this value will be adequate to fill our fiscal hole,social sector financing and the expensive low carbon technology). It is time that the government got out of the Shakespearean dilemma of to be or not to be if we accept disinvestment as an integral part of our economic strategy,the country could be better served not by increments but by bolder and more coherent action,without undue concern about some inevitable opposition. But to do so it must be transparent,the entities more carefully selected,best expertise employed and action timed to fully realise the embedded value. A job less than half done needs course correction,and consensus-seeking beyond a point is no substitute to rational economic decision-making. Historians are usually harsh on lost opportunities.
The writer is a Rajya Sabha MP.
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