Did we celebrate too soon? Those who'd enthusiastically greeted the return of disinvestment to the government's agenda in December 2005 are now repenting at leisure. The meeting of central Leftist stalwarts on January 2 unanimously decided to oppose, among other things, the government's tentative plan to offload 5 to 10 per cent stakes in a few non-navaratna PSUs. As a result, the government will flag off disinvestment only with the sale of its residual stakes in six companies—Maruti, Balco, VSNL, CMC and IPCL—that have already been privatised.
By end-March, only an eight per cent stake sale in Maruti Udyog and, perhaps, a partial sell-off in Balco will be through. In July last year, the Left's sudden turnabout on disinvestment of bhel practically sealed the fate of navaratna PSUs. It was then given to understand by the Left, in discussions where the finance minister was present, that the government could perhaps go ahead with offloading small stakes in the non-navaratnas. A concrete proposal involving about 10-15 companies started doing the rounds in December, apparently with the Left leaders' blessings.
These companies included the Power Finance Corporation, National Mineral Development Corporation, Neyveli Lignite Corporation, HUDCO, Container Corporation, Bharat Sanchar Nigam Ltd, Indian Railways Finance Corporation, PowerGrid Corporation, Shipping Corporation of India, National Hydro Power Corporation and Nalco. However, after various ministries exercised their control and say over the companies in their zones and staff agitation in some companies like the BSNL, only the first four were left in the list. Finance minister P. Chidambaram met the top Left leaders and persuaded some of them to allow his ministry to go ahead with the stake sale.
His achievement was shortlived. Since the Left's principal objection was that India should not sell her family silver and use the proceeds to fund consumption, the government thought that by disinvesting non-navaratnas and creating the National Investment Fund, it would manage to soften the Left. The government had clearly mentioned, and reiterated in Parliament, that the proceeds would remain in the capital account and the resources generated by the NIF would be used for additional spending on social sector projects and revival of sick PSUs.
Out of a 120-odd non-navaratna profit-making companies, the government drew up a preliminary list where it could offload a tiny stake. The idea, quite simply, was to make hay while the stockmarket was shining. Chidambaram even talked encouragingly of capital market behaviour, precluding any foul play. All that has come to nought—definitely till the West Bengal state elections—though the Left is forthright that it would forever oppose all forms of disinvestment in all profit-making PSUs. Even among loss-making companies, they'd like to look at a possible sale on a case-by-case basis; "only those companies which are totally bankrupt and have absolutely no hope of revival can be sold off," says CPI general secretary A.B. Bardhan.
Bardhan emphasises that "the Left never agreed to non-navaratna disinvestment. All this talk about a volte face is a canard. We merely said that we would consider the proposals, so send us the list of companies. If the government has a suggestion, we cannot just say no." Bardhan, who along with his trade union wing (AITUC) colleague Gurudas Dasgupta, are known as the prickliest Left leaders, also denies any difference of opinion among the Left constituents on disinvestment. "All of us hold the same view on disinvestment, none are more opposed or less," he avers. What will happen to the National Investment Fund then? "All PSUs should be asked to contribute to it," he adds.
So is it time to say amen to disinvestment? If 2005 held a lesson for the government in how not to go about disinvestment with the Left as allies, 2006 could be the year when the government, if it's serious, hits upon the elusive formula. To this end, Outlook asked experts within the government and outside for their suggestions on backdoor privatisation. Although the prevailing mood seemed to be sombre, considering the fragile position of the Congress party in this coalition, some doable proposals and tactical plans did emerge.
The solution to any problem depends upon the objectives. Here, too, the options hinge on what the government wants out of disinvestment. If the primary objective is to raise resources, there clearly aren't many alternatives. Says IIM-A professor T.T. Rammohan: "The government has got many of the PSUs to cough up more by way of (extra) dividends but that will fetch only so much. A theoretical option is to park the government's holdings with state-owned financial institutions. The government could tell the Left that the central ownership and control would continue. But, at current prices of stocks, this may not be in the interest of the FIs themselves and it might also imply breach of RBI norms for bank exposure to stocks."
According to Ajay Shah, former consultant to the finance ministry, "a slight trick could be for PSUs to issue convertible bonds, either onshore or offshore. Another could be to merge a PSU where GOI has over 51 per cent into a PSU which has below 51 per cent (like Maruti). For instance, one could merge IDFC into HDFC and thus get the government out of IDFC."
Investment banker Udayan Bose has another suggestion for a government chary of strategic sale, where he says his own experience wasn't that good. "We will see IPOs for Indian Airlines, Air India and the Shipping Corporation of India, which is a good way to raise capital through the markets and then use it for building infrastructure etc," he says.
The other objective of disinvestment has been to manage a government-owned resource more efficiently or productively. For that, says Ashima Goyal, professor at IGIDR, Bombay, "a de-facto privatisation by stopping all budgetary support, making management independent of political pressures, setting up a strong board responsible for professional appointments, and adopting other measures of good corporate governance, is a way out. Non-navaratnas bleed taxpayers' money. If asset values cannot be realised, at least the bleeding can be stopped."
The other change-management way is public-private partnership, which Ajit Ranade, chief economist, AV Birla group, considers the magic word. "Different models of this partnership are emerging, as in the case of the airport modernisation projects. I think we can particularly see such partnerships in new infrastructure projects," says Ranade.
While few, including the markets, had much expectations of this government, the policymakers have also come under fire for their inability to micromanage the Left. Says Bibek Debroy, secretary general, PHDCCI: "Given the nature of the coalition, one knew that disinvestment and amendment to the Industrial Disputes Act wouldn't happen. Both are forms of exit policy and Bengalis, especially the CPI(M), don't like exit policies, whether it's for Netaji, Sourav or workers." Bose agrees: "The Left has found a constituency that supports their stand, so they think they are doing the right thing and have a fixed posture. The only way out is to come up with some common programme that all parties can agree on."
How, then, to manage the Left? IIM-A's Rammohan has a point when he says that "the government has to carry the Left along by coming out with the promised and long-delayed disinvestment white paper that outlines a roadmap and provides assurances on continued government control. I have two options: parliamentary nod for any decline in shareholding below 51 per cent, and adopting a variant of Banking Companies Act so that the 'public sector character' of the entities is retained even if shareholding falls below 51 per cent." But the best advice should come from Bengal where even Left dogmas are under threat. Says Ravi Poddar, CII eastern region chairman: "The nation needs the money to upgrade its infrastructure and the PSUs need funds infusion and better knowhow. The Left has to be convinced that as long as the interests of the workers are safeguarded, there cannot be any logical opposition to disinvestment."
Even Saumitra Chaudhuri, member of PM's economic advisory council, feels that it is all a matter of stance. As a result, bargaining becomes important. Says Debroy: "Tactically, the government should say, no labour cess to fund social security for the unorganised sector. Instead, the money will come from disinvestment." Avijit Sen, co-chairman, Nicco group of Bengal, advises: "Offer a package deal to those purchasing shares in profit-making PSUs; they'd have to invest to revive the sick PSUs as well. Secondly, the FM can extract his pound of flesh by offering carrots, like the recent decision of sanctioning Rs 4,000 crore to revive sick PSUs, mostly in Bengal. Using sensitive political issues—like, greater nuclear cooperation with the US—as bargaining chips might also work."
However, those in the government feel that wrangling over disinvestment in companies like HUDCO and NMDC is a lost cause. HUDCO invests in low-cost housing for the poor, so social objectives become important. NMDC is a company where, admits Bardhan, the AITUC is strong. Also, the resources involved are too small to risk a full-scale confrontation with the Left. Far easier to force well-off PSUs to part with special dividends, which could fetch Rs 10,000-15,000 crore.
Chidambaram is believed to be unperturbed and going ahead with his plan in five or six PSUs. As a senior government economist says, "the government wants to keep the issue open. Maybe there is hope after the elections." But the government's soundbites on disinvestment is forcing more Left belligerence. The Left leaders see their core constituency—that too, eroding—in old jobs and are unable to risk antagonising the unions. Between the Left's political gains and the Centre's reforms objectives, crores of rupees of public assets lie waiting for productive valuation and utilisation.
