The Hindu : Business : `No major policy change likely'

Online edition of India's National Newspaper
Monday, May 31, 2004

Business

Business

`No major policy change likely'

THE COMMON Minimum Programme appearing in the papers today is a lengthy, generalised statement that does not commit the Government to any specific line of action. Let us take the three main issues on which much heat was generated during the election campaign — disinvestment, privatisation and agriculture.

Disinvestment

On the question of disinvestment, the CMP states, "Profit making PSUs will not be privatised, generally.'' What is the need for the appendix, `generally'? It seems to be a very significant and late addition.

Again, what is meant by privatisation? A PSU can become a private company only if the Government disinvests more than 50 per cent of its holdings or hands over administrative control to a private group. If less than 50 per cent of the holdings is given away and a nominal administrative control is retained, it cannot be called privatisation. So, massive disinvestment, that has come to be termed as selling family silver, can continue.

It is also stated that the profit making public sector undertakings will be allowed to raise resources from the capital market. What kind of resources, it is not clear. If they are allowed to raise the additional capital required, it will automatically reduce the percentage holding of the Government in these undertakings. While it is technically different from disinvestment, it is not so actually.

Selling family silver is in itself not bad. It can be a good proposition if the cash received from sale is used for generating more wealth. Take the case of LIC of India. It has a huge volume of hidden, idle wealth like family silver. It can be utilised to generate more wealth for the nation. This idle wealth, known as the embedded value, is the discounted value of future profit flow. This year, the Government will be getting Rs. 500 crores as dividend and this will be increasing by not less than 10 per cent each year. If 20 per cent of the Government's holding in the LIC is offered to the general public, the money raised can not only help the corporation in creating an explicit reserve, but also enable the Government to have ready access to resources at reasonable cost.

The statements in the CMP are delightfully vague and give no clear commitment on any aspect. This vagueness seems deliberate and appears to be just the strategy to give the new government a free hand and enable it to follow the policy of its predecessor in the matter of disinvestment. The shock treatment given by the stock market on May 13 has certainly yielded results and brought down even the marxists to earth.

With the unanimity of view among all political parties regarding disinvestment (irrespective of their public posture), one can expect the process to gain momentum in the coming months. Whether it is good or bad for the country will depend on the way the money earned is spent.

Agriculture

A notable omission in the CMP is the policy on agricultural subsidy. Its agriculture policy was one of the major reasons behind the debacle of BJP in the last elections. Under pressure from western countries, it began removing or reducing many of the agricultural subsidies. It never realised that the amount of subsidy given in India is not even a fraction of that given in the U.S. and Europe. In the case of power supply, the amount of power lost due to an inefficient transmission system may be higher than the free power supply to agriculture. Instead of spending on infrastructure development and improving efficiency, it tried only to reduce expenses by cutting subsides. This resulted not only in hardships to farmers but also in slowing down job creation.

The CMP is also silent on the issues of subsidised fertilizer and power supply. On the subject of protection from global competition, emphasis is laid on protection when international prices fall sharply and is a little vague regarding protection against systematically subsidised prices of some countries.

On the whole, if the CMP is any indication, the change in government will not bring about any major change of policy. The investors need not therefore harbour any apprehension. After the presentation of the budget, they can certainly see the stock market bouncing back to life. Provided, of course, none of the coalition partners changes its stance in the mean time.

R. Ramakrishnan
(Actuary)

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