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'Divestment money wasn't used for rural development'

Last updated on: June 10, 2004 18:06 IST

G V Ramakrishna, former Chairman, Divestment Commission. Photo: Sreeram Selvaraj

G V Ramakrishna pulls no punches. The former chairman of the Divestment Commission says the divestment or privatisation of public sector units should be done prudently and there is a need to find a cure to the sick public sector.

He says there are too many controls over PSUs and to ask them to compete with the private sector after "tying one of their hands behind their back" is unfair.

'GVR' started his career as a biochemist at the Bowring Hospital in Bangalore. He joined the Indian Administrative Service in 1952. He was allotted to the Andhra Pradesh cadre and eventually rose to be chief secretary to the Andhra Pradesh government in 1983.

He served in the central secretariat, in the ministries of finance, industry, coal and petroleum. He also served at the Indian embassy in Washington, DC and was India's ambassador to the European Economic Community.

Ramakrishna, 74, holds the degree of Master of Public Administration from Harvard.

He was an advisor to the Planning Commission in 1981 and became a member in 1994. In between, he was appointed as the first chairman of the Securities and Exchange Board of India in 1990.

He was also the first chairman of the Divestment Commission.

Ramakrishna is now Chairman Emeritus of the Construction Industry Development Council in Chennai.

His memoirs are being published shortly under the title Two Score and Ten.

In a frank tete-a-tete with Contributing Special Correspondent Shobha Warrier -- which we publish in two parts --Ramakrishna says India must have a National Shareholding Trust and a divestment fund to utilise the divestment proceeds to build rural infrastructure, schools, etc. He also says that government control curbs public sector growth.

You were the first person to head the Divestment Commission in 1996. The NDA government had a divestment ministry and it pursued divestment quite actively. Were you happy with the way the NDA did the work?

The United Front government in August 1996 set up the Divestment Commission. We put forward certain general principles to be followed in the entire divestment process.

First thing we said -- and which we repeated three times in 12 reports -- was that the proceeds of divestment should be placed in a separate fund and used for developing social infrastructure in rural areas, used for VRS (voluntary retirement scheme) of public sector employees and for restructuring the companies.

We suggested the delinking of the divestment process from the Budget. This was not followed. And, till today we do not have a divestment fund.

From 1991-92, when divestment started, if you take the first ten years, they (the government) collected Rs 20,000 crore (Rs 200 billion). It all went into the general Budget, and was not used for any social infrastructure.

This money, if used through a separate fund would have helped the government build 4 million houses, which would probably accommodate 25 million people, 100,000 schools in the rural areas, 5,000 primary health centres.

Still, they could have a surplus of Rs 5,000 crore (Rs 50 billion) for VRS. None of this was done. It was a lost opportunity.

Since then, the divestment proceeds have more than doubled to Rs 44,000 crore (Rs 440 billion), and it could have produced double the benefits like 8 million houses, 2 lakh (200,000) schools, Rs 10,000 crore (Rs 100 billion) for VRS and 10,000 primary health centres.

Capital assets of the government have been sold to meet revenue expenditure. That is why the divestment process is seen as selling family silver to pay the butler.

The NDA talked about utilising the amount for infrastructure…

But they never made it transparent. They said they were using it for rural development through the Budget and plan allocations. In fact, from the year 1997 onwards, there has been a fall in the expenditure on rural development. I want to say again, we lost a tremendous opportunity to show that divestment done selectively would be for the good of the rural people.

They have used the proceeds mainly to reduce the fiscal deficit. In the first ten years, the effect on the fiscal deficit was only in the second decimal place. From 5.72 percent, it has down to 5.70 percent of GDP.

Where do you think the money has gone?

To the Budget. There's no mystery about it. It has gone into various expenditures -- on security, on staff, etc, etc. But it did not support rural development by making a net addition to the allocation for houses, etc.

I would say a large number of recommendations of the Divest Commission have not been followed. The argument is still going on as to what is divestment, and what is privatisation.

Privatisation means selling the majority share holding and giving management control to a private party but divestment is selling some minority shares of the government without transferring control.

Even this form of divestment has large problems because if you have the government as the largest single shareholder, with shareholding below 51 percent, then the company is not a public sector company and there is no accountability and no checks and balances.

The minister will be using his rights as the largest single shareholder. So, I had said that this form of non public sector company will become a private zamindari.

There is an alternative: you sell shares to the people, don't keep the residual shares of below 51 percent in the hands of the minister, and hand them over to a national share holding trust under a trust agreement.

A broad-based management of private sector, retired public sector, and some government representatives will run the trust. The government could start by entrusting the shares of a few big public sector companies to the trust The companies under the trust will then be overseeing publicly held, professionally managed, non-public sector, non-private sector companies which can be developed into global companies.

Now that the new government has abolished the divestment ministry, in what way do you think it will affect the overall Indian economy and the divestment process itself?

Divestment had started even before the ministry was formed. The concerned ministry under the guidance of the finance ministry did it. They are very clear now that, for strategic reasons, that you should not privatise blue-chip companies. They say that the oil companies, NTPC, BHEL, NALCO, financial institutions, etc should not be privatised.

So, the abolition of the ministry will not have any impact?

The mechanism of the ministry will not have any impact but the policy and the procedures of the ministry will be quite different. The ideas are still not very clear. Now there's a statement that ONGC (Oil and Natural Gas Corporation) and others can raise funds from the market. They are forgetting that divestment is of government-owned shares. If the government sells the shares, the money goes to the government. But the company raising money for its own purposes is not divestment, although the percentage of government shareholding may go down.

Part II: 'The real issue is not privatisation'

Photograph: Sreeram Selvaraj

Image: Uday Kuckian