The Hindu : Divestment blues

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Wednesday, Sep 24, 2003

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Divestment blues

BY ALL ACCOUNTS, the Supreme Court judgment of last week is a blow to the disinvestment process. By ruling that the Government cannot privatise HPCL and BPCL without the approval of Parliament, the Court has, at the very least, set the clock back, not only with regard to these two companies but the programme as a whole. The two oil companies have been the centrepieces of the disinvestment agenda over the past two years. Apart from being in a strategic sector, the two companies make profits and are already listed on the stock exchange. Their sale was expected to be controversial, even by the fractious record of the disinvestment programme so far. A broad, if uninformed, criticism of the programme has been over the choice of companies for divestment. According to this view, only loss making and unviable companies should be sold. More specific has been the criticism over the method chosen by the Government for divesting its stake. The strategic sale route involving the handing over of the management along with a chunk of equity to the successful bidder has come to be the preferred method recently. Initially both the oil companies were to be sold through that route but concerted political opposition forced the Government to seek a compromise — a strategic sale for HPCL and a public offer route for BPCL. In contrast to the strategic sale, which is akin to "instant privatisation", the latter method, widely followed in the initial stages of the programme, is more gradual, with the Government divesting its stake through the stock exchanges in phases.

Equally important, if the Government had been able to move forward with the divestment of its stake in the two oil companies, it would have built upon the momentum generated by the successful strategic sale of some important public sector enterprises such as VSNL and IPCL and the uniquely fashioned divestment method adopted in the case of Maruti Udyog. Strategic bidders, including those from abroad, would have received the right signals. If an inherently contentious privatisation could have been accomplished, how much easier would it have been for the Government to handle other enterprises? Even candidates such as Air India, Indian Airlines and the National Fertilizer Limited, which have not attracted adequate bidding interest, may move smoothly off the auction floor. But this is a dream that has rudely come to a halt. In a purely fiscal sense too the Government will take a hit. As against a budgetary target of Rs. 13,200 crores for the current year, the disinvestment programme has so far raked in just over Rs. 1,000 crores, including Rs. 900 crores from Maruti's "big-ticket" divestment. The one involving either of the two oil companies would have helped bridge the gap. However, underachievement of the budgetary target has been the rule with regard to the disinvestment programme.

Is the Supreme Court verdict a blow against reform? The answer is: No. It is clear that the Government was less than meticulous in handling the procedures and perhaps far too smug about building a consensus on reform. The situation is analogous to the one that prevailed in the insurance sector before it was opened up. There too the lack of a political consensus considerably delayed the legislation that eventually paved the way for the entry of the private sector. The latest verdict comes as another reminder to the Government that it needs to enlist wider support for its task. Admittedly in an election year that is not going to be easy, but then reform is never a cakewalk.

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