That P Word Again...

Great Eastern’s sale to Delhi-based Bharat Hotels Ltd marks the end of adecade-long effort of West Bengal’s government to privatise this loss-makinghotel. To safeguard the interests of workers, safeguards are in place to ensurethat their legitimate dues are settled and younger employees given a chance tobe re-employed when the hotel resumes operations. With this sale, West Bengalfinally opens its account to sell unviable PSUs under its watch. The state has82 public sector enterprises, 15 of which have been identified for winding up.Barring the hotel, none of these have been privatised or closed.

With such a precedent, the Left is unlikely to pose any problems if the UPAgovernment decides to privatise centrally-run PSUs in the future. Out of 247such enterprises, more than a third are loss making. The Left’s only caveat isthat none of these must be profitable navaratna PSUs that have the potential tobecome world class. Opposition to the P word stems from the Left’s fears thatjobs will be lost when public companies are sold. But to be fair to them, theyare not the only ones who are against this process. Opposition also emanatesfrom bureaucrats who head PSUs in various states. With as many as 1,036 suchenterprises at the state-level -- headed mostly by babus -- this potentialsource of opposition to privatisation has not been adequately recognised.

More than a third of such enterprises have been recommended for winding up orrehabilitation. But due to intense political and bureaucratic opposition, only36 state-level PSUs have so far been privatised. The tiger on the P front isAndhra Pradesh that alone accounts for 13 of these PSUs, followed by Orissa,which sold nine enterprises so far. Andhra also accounts for bulk of the 111state-level enterprises that have been closed.

With the Great Eastern sale, all eyes will now be on how other states likeMaharashtra go about privatising PSUs. Simply put, its compulsions to do sorelate to paucity of resources. A cash-strapped state government can hardlyafford to support enterprises that are doing well, besides those that are sickand unviable. Maharashtra has 66 state-level PSUs, which includes the likes ofthe profitable and dividend paying Haffkine Bio-Pharmaceutical CorporationLimited. This company depends on sales of oral polio vaccines to the government.But Haffkine needs Rs 80 crores for development that the government cannotprovide. Isn’t this a fit case for privatisation?

Matters are no different at the Centre. The fiscal situation is equally tightand loss making centrally run PSUs cannot be supported through scarce budgetaryresources. Privatisation is the way out, but the process has been conspicuous byits absence except during the rule of the BJP-led NDA government. Blue chipunits like Maruti Udyog Ltd, VSNL then were sold raising Rs 10,257 crore from1999-2000 to 2004-05 or one-fifth of the total revenues from sales of governmentequity. But they attracted political lightning like no other reform did and werestalled effectively since 2002-03.

With the nature of Left support, the UPA government obviously cannot hope tosell profitable PSUs as the NDA government did. But with West Bengal’ssuccessful example, efforts can and must be made to prioritise loss makingcentrally run PSUs for privatisation. It is worth pointing out that between1999-2004-05, loss making PSUs were also successfully put on the block: Out ofthe 36 instances of privatisation, 25 of these were of loss making companieslike Modern Foods, Lagan Jute Making Machinery, Paradeep Phosphates, Jessop& Co Ltd, besides 19 ITDC hotels all over the country.

For such reasons, the Left’s caveat regarding profitable navaratna PSUsshouldn’t be taken as a binding constraint on privatising loss making PSUs aswell. The window of opportunity provided by the Great Eastern sale should beexploited to the full and an ambitious programme drawn up at the earliest. Sofar, however, the Union finance minister has only indicated that sales of smallquantities of the government’s stake in PSUs will be revived. The basic pointis that the UPA government’s sights can now be raised somewhat higher usingthe precedent of West Bengal’s privatisation drive.

While the P word thus bids fair to be kickstarted, the UPA government,however, must go about the process in a transparent manner. Privatisation theworld over is often the stuff of scandal as crony capitalism ensures that nearand dear of powerful politicians corner the sale of such assets at bargainbasement prices -- the Russian example comes readily to mind. Even the NDAgovernment’s privatisation of Centaur hotel, for instance, had a whiff ofscandal. The need for greater vigilance on this score is obviously dictated bythe nature of Left support on which the survival of the UPA government rests.Learning from Bengal’s example thus might be salutary in getting the necessarypolitical support to revive this process. The UPA government must seize thisopportunity at the earliest.

N. Chandra Mohan is a commentator on economic issues and is based in NewDelhi)