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Rediff News  All News  » Business » Should the divestment ministry be scrapped?

Should the divestment ministry be scrapped?

June 02, 2004 13:09 IST

A B Bardhan
General Secretary,

Even Lord Keynes would not have approved of divestment! Even he believed that there are some areas the government should not step out of. The statement about wrapping up the divestment ministry was not radical.

Divestment means privatising profits and nationalising losses. Why is disinvesment being projected as being at the centrestage of the reforms process? The whole issue is a "song-and-dance-affair". It was the National Democratic Alliance government that set up the first-ever divestment ministry.

It virtually put India up for sale: it set up a shop to sell off prime national assets. These assets were up for grabs for both indigenous domestic monopolies and foreign investors alike.

Public sector undertakings were privatised even before the NDA regime, but a separate ministry was not required for it; the respective nodal ministry or the finance ministry carried it out. Besides, there is a limit to the number of ministries a government can have.

The NDA succumbed to pressure from the International Monetary Fund and World Bank and sold off profit-making PSUs. Profit-making PSUs should not be privatised for two main reasons. First, because they are major contributors for taxes, and, second, they pay huge dividends.

In all fairness to history, it must be remembered that it was the private sector that had first run into massive losses in sectors like oil and steel, after having extracted all the profits possible and having abandoned the workers to fend for themselves.

The private sector was revitalised by the state — National Textile Mills being one example. These private companies did not plough back capital into the sector.

All PSUs that were privatised by the NDA government were profit-making. Why were the sick and the junk industries not sold? A section of the people driving the argument wanted the inflow of foreign capital to simply buy assets instead of making fresh investments.

Selling profit-making PSUs, like Oil and Natural Gas Corporation, is akin to selling jewels to buy groceries. The money generated from the divestment process was not used properly, it was simply put back into the Budget. After unbridled privatisation during the NDA regime, the total proceeds did not even account for a fraction of the total annual interest on debt.

It was US Ambassador Richard Celeste who first spoke of opening up the insurance sector in India, only to join an insurance company in the US soon after his tenure in India. So, we should be wary of all vested interests operating under the garb of greater fiscal discipline.

I am against the privatisation of the state electricity boards. I simply do not understand the merit of the decision of setting up state regulatory commissions even as private distributors increase costs repeatedly.

In a state like Delhi, for instance, can any private power distributor without an established work force be able to carry out electrification? To suggest that "the state has no business to be in business", propounded by the Freidman school of thought, should not have any takers now.

It is ridiculous that the private sector must expect that the profit-making PSUs will provide them everything on a platter. I have been involved with the Maharashtra State Electricity Board workers' union for over four decades now, and we have fought hard to keep out any private players.

Why are there no takers for loss-making units? There are over 6,00,000 private sector units that have been shut down; why isn't anyone talking about them? Is a loss-making entity a raw deal for private players? When Margaret Thatcher privatised the British railways, what was the need to re-nationalise it two years ago? Why are we not asking these questions?

Also, Hindustan Antibiotics and Indian Drugs and Pharmaceuticals Limited should not be privatised: they have to be revived. It is important that essential bulk drug manufacturers should be revived because they will address the concerns of the poor, unlike the domestic monopolies in the pharma industry or the multinational drug companies.

However, senior bureaucrats in PSUs are increasingly in favour of privatisation because they directly stand to gain from it. Also, politicians and leaders at the state level are always hesitant to give up their claim on the PSUs in their state.

A PSU is created with certain social responsibilities according to the Constitution. Therefore, those PSUs that have already been privatised must accommodate for reservations for backward classes as well, keeping in mind the social obligations of the former PSU.

The Left is not against the private sector as such, but against unbridled divestment. We need investment, not divestment. We realise the importance of the role of the private sector,

it is important to encourage the sector.

As told to Priti Patnaik

Jagdish Shettigar
BJP Economic Cell

I think the whole debate on whether the divestment ministry should exist or not is irrelevant because the present set-up does not even believe in the concept. The opposition, in my opinion, is not to the divestment ministry but to the process.

The present government, however, has been vague on the issue. Its stance is that profit-making bodies should not be divested but at the same time it has nothing against the revival of sick units through the divestment process.

The essence of revival lies in the fact that the units start earning profits. Carrying the argument to its logical conclusion, this would mean that no unit would ever be put on the divestment block.

The government, despite being against the process in principle, has been reluctant to be clear on the issue. This is due to the apprehensions it has over the stock market's response, which, as we all witnessed, has been sliding in recent times.

The fear of stock market disturbance translating into political instability has resulted in the government sending out confused signals. The government should, therefore, come out clean on this issue.

If the government wants to continue the divestment process then, after selecting the units to be divested, it is important to entrust implementation to an independent body. Our experience has taught us that delay is inevitable when divestment is left to particular ministries.

Even if a ministry is committed to divestment, when it comes to selling off public sector undertakings (PSUs) that are under its purview, reluctance creeps in. The hesitation is natural, since no one would want to trim their political empire. In fact, even the minister who was entrusted with the divestment ministry could not muster much zeal in divesting the PSUs of his other ministry.

This is why it is important to have an independent ministry to expedite the process without letting the individual ministries' selfish interests get in the way.

The concept of a separate divestment department was first mooted by Pramod Mahajan, after which our party [the BJP] included it in our manifesto in 1996. But realising that a separate ministry was important for maintaining the independence of the procedures, in 1999, when we came to power, a divestment ministry was set up.

The National Democratic Alliance government had to face a lot of flak regarding the transparency of the process, both from within and outside the party.

There was criticism that the process was going too fast and that certain units did not get the right valuation. We were also accused of utilising the accruals from the divestment process to bridge the fiscal deficit.

The allegation is unfair, since right from the beginning we had spelt out that the resources mobilised would be divided equally in retiring debt, social sector development and PSU development.

I admit there is always scope for improvement, and we were learning from our mistakes. For instance, after the controversy over Balco divestment, we stipulated that the surplus assets of any concern should be separated while divesting it.

It is possible that the present set-up is opposed to the pace at which the process was carried out, but by asking to scrap the ministry altogether, the anger is being channeled in the wrong direction.

On an emotional level, even I am against divesting profit-making bodies. However, managing finances and reforms is not an emotional matter. If the government is against divesting public sector units, then it owes an explanation to the public about what the alternative should be.

The present government will have to come out with alternatives to divestment for generating resources for the development of the social sector and retiring debt.

Moreover, in the words of the present government itself, the emphasis is on expenditure on the social sector. Also, retiring debt is important, because otherwise the interest burden would be too much to handle in future. I am not saying that divestment proceeds will be sufficient to fully meet the resource gap for the purpose, but it would help.

Divestment is also important for speeding up the reform process. Last year, Standard & Poor's gave India a negative rating precisely because the divestment process had slowed down. At that point of time everybody was grudging the slowdown in the reform process.

I would like to be open-minded about the whole affair and if the government can carry on divestment independently without having a ministry, it can experiment with it. But, as I had mentioned earlier, this set-up is against the process altogether, which makes this debate futile.

As told to Vishaka Zadoo

BS Bureau in New Delhi