The decision to hike foreign direct investment (FDI) in civil aviation and telecom have been postponed with the cabinet divided on it. Obviously, that helps Indian owners. Strategic sales (or bulk sale to a single buyer at a premium price), which the disinvestment and telecom minister Arun Shourie once claimed as the only right way to privatise PSUs, is no longer on the NDA's radar. Shourie seems to have cowed down to his swadeshi opponents and decided to sell the government's stake in the open market to lakhs of investors. And, in sectors like power, there's a move to introduce the concept of fixed returns to promoters, which is clearly anti-reforms.
But ironically, not too many see shades of saffron in all these moves. "It's all about election politics and short-term," says a consultant who's involved with the disinvestment process. Adds Y.K. Modi, ficci president, "The issue is that at present no legislative action can be taken, nor can any ordinance be passed (because of the coming elections)." Says Swadeshi Jagaran Manch co-convenor S. Gurumurthy, the unbending helmsman of that school, "FDI is just one component of reforms.... Therefore, it is simplistic to say reforms have been blocked just because FDI levels are not being raised."
Read their lips carefully, and the government's real agenda will be clear. Take disinvestment, for example. Petroleum minister Ram Naik has publicly claimed that government stake in oil PSUs will never come down below 51 per cent. Remember, this was a controversial subject where a number of NDA ministers, including deputy prime minister L.K. Advani, and swadeshi elements ganged up against Shourie to block the sale of hpcl and bpcl. Now, Naik is saying he has won this battle, at least for the time being.
At a micro level, Proshanto Bannerjee, CMD, Gas Authority of India Ltd (GAIL), whose Rs 1,800 crore IPO (initial public offering) will hit the market later this month, agrees that 'strategic sale' in his company has been 'held in abeyance.' He adds in the same breath that the IPO has actually been preponed and several such IPOs of state-owned firms will be coming through the year. But that's not the point. Because, not too long ago, strategic sale was being touted by Shourie and his supporters as the only way ahead.
However, there is a spin to justify such turnarounds. And there are many here. Investment analysts argue that Shourie was forced to go slow on strategic sales because of the Supreme Court ruling which said the government has to seek parliamentary clearance to sell PSUs created via parliamentary acts. Says P.N. Vijay, convenor, BJP's central economic cell, "Shourie has been trying his best to push them through. However, the Supreme Court verdict has stymied him." What these supporters don't reveal is that the SC restriction doesn't apply to all PSUs, and many of them can still be sold.
Yet another logic: most people don't see the delay in strategic sales as a problem as long as the government stake in PSUs gets diluted in some way. "The main aim is to reduce fiscal deficit. Whether by strategic sales or IPOs, it doesn't make a difference," says Jigar Shah, vice president, KR Choksey Securities. Several analysts contend that they expect the government to revert to its focus on strategic sales after it comes back to power with a renewed mandate.
In fact, that's the common impression among BJP supporters. Which is true to an extent because election politics is definitely playing a role. "A lot of these issues (civil aviation, oil, telecom and insurance) are also about corporate battles and the tussle between vested interests. At this juncture before elections, the government doesn't want to take decisions that seem to favour one or the other," explains a Delhi-based lobbyist.
One of those battles is between foreigners and Indians; in some cases, it's between state-owned firms and foreign ones. Telecom is an example where two existing service providers, Hutch and Bharti, are contemplating a recourse to fresh FDI. So, they were hoping the government would raise the cap from 49 to 74 per cent. But the same is being opposed by the local promoters who have sought the help of 'swadeshis' in the garb of security interests. At the cabinet meeting held to discuss the hike, Advani put his foot down, which didn't go down well with Shourie.
In insurance, the state-owned Life Insurance Corporation (LIC) has been peeved with the growing clout of foreign firms. So, a few months ago, it got a jolt when the FM increased the FDI cap in the sector. But there was a huge sigh of relief after reading the fine print. What Jaswant had done was to club the stakes held by both foreign promoters and foreign institutional investors in the new, higher ceiling. The result: several private firms had to actually reduce the combined foreign stake to adhere to the new cap.
The corporate warfare in civil aviation is a bit more complex. It's about the national carriers, Indian Airlines and Air-India, vs the private airlines. It's about the Indian private airlines vs global ones. And it's also about the fight for supremacy among the Indian private airlines. More than that, there's the political angle: Shourie has made it clear he doesn't like Jet Airways, Union aviation minister Rajiv Pratap Rudy is believed to be supporting one of the private airlines, and the rest of the cabinet ministers have their specific agendas.
When the cabinet met on February 4 to liberalise the aviation sector by increasing the FDI cap and allowing Indian private airlines a graded entry on international sectors, the mood in both IA and A-I was quite despondent. A senior A-I manager explained the predicament: "The relationship of my chief with the minister is like that of servant and employer. But the owners of private airlines have one of equality with him." Both IA and A-I argue that no country allows unlimited flights to any airline on international routes; in fact, not more than two airlines per country are allowed to fly such routes.
However, the fireworks started at the meeting. Shourie singled out Jet Airways as the biggest beneficiary of the policies and raised the 'security bogey'—a point he has always harboured against the airline. He has questioned the ownership pattern of Jet which, according to him, is not open and transparent. Jet has always denied this and no evidence has ever been furnished by Shourie & Co against the airline. Slowly, prime minister Atal Behari Vajpayee, who is personally keen on these initiatives, realised that several cabinet ministers opposed Rudy's plans. And that was the end of it. The decisions were postponed. Says a relieved ceo of one of the private airlines: "It's good the government did not rush though with a lopsided aviation policy."
Obviously, as in the case of aviation, all the derailments were aimed to stifle controversies, bow to swadeshi demands or not to irk powerful constituencies just months before elections. The end result: reforms in some areas have taken a backseat. So, the pro-reforms segment is trying to limit the damage.Says ficci's Modi: "We will lobby with political parties and create public opinion so that further reforms can be included in their manifestos. That will ensure there is no confusion once the new government is in place." In the interim, they may have to live with the spectre of swadeshi economics.
Alam Srinivas with reports from Gauri Bhatia, Suveen K. Sinha and Saumya Roy