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November 17, 1999


Sinha defends GAIL divestment

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Finance Minister Yashwant Sinha today defended the government's decision to offload its stake in Gas Authority of India Limited or GAIL through the Global Depository Market route to Enron and British Gas. He spoke at the Economic Editors Conference in New Delhi.

Referring to criticism of the sale of Gas Authority of India Limited shares at Rs 70 in the Global Depository Receipt market, Sinha said in the current situation it was not incorrect to sell the shares at Rs 70 in the GDR market.

The share price would have fallen further had Enron and British Gas not bought the shares. They had bought six per cent of the total equity. It was for the government to act and it will do so, otherwise it could be asked as to why it did not sell at this price. There was nothing which could have prevented these two multinational giants from purchasing the shares from the GDR market. Their buying these shares has only enhanced the standing of GAIL and the sale was done in a perfectly transparent manner through the book building method.

He said GAIL as a commercial entity has gained with the GDR purchase by BG and Enron. "There is no question of giving them any seat on the board of GAIL. The government of India still holds 67 per cent stake in the company," he said.

Shareholders with 12 per cent equity and above in a company could demand a seat on the company's board of directors.

Sinha said "the entire disinvestment programme would have been in jeopardy" if the government had pulled out of the GDR, as was being suggested by the opposition parties.

He said the domestic market did not have the demand to absorb an issue of the size of 150 million shares as was evident from the March 1999 experience when only 30 million of the 80 million GAIL shares offerred could be sold in the domestic market.

The price in the domestic offer was 60 rupees -- about 10 per cent lower than the secondary market price at that time, he added.

Sinha said the government was not waiting for a formal launch of the second generation of reforms. These have already started and the insurance bill and replacing the Foreign Exchange Regulation Act with Foreign Exchange Management Act and Money Laundring Bill were were part of the new phase of reforms. Yesterday's agreement on tax reforms was also a part of this, he said.

Growth in 99-00 could be 6.5 pc

The finance minister reaffirmed that economic recovery was well underway and said the fiscal year could end with a growth rate of more than 6.5 per cent.

Sinha said, ''Sometime ago, I had used the expression that there are signs of economic recovery but we waited for more firm indicators. Now the economic revival is indeed taking place and the economy is on the rebound.''

Sinha said this can be established from any parameters like foreign exchange reserves, industrial growth rate, or food grain production. These indicators on the basis of which growth is determined are all positive.

The finance minister said the fiscal situation was difficult and added that the government's spending on food and fertilisers and defence could increase. He, however, said the government would keep spending for the fiscal year 1999-2000 within the budgeted target.

Govt keen on enacting Fiscal Consolidation Act

Sinha said the government was keen to enact the Fiscal Consolidation Act. He said the fiscal deficit in the first six months of the current financial year is 66 per cent of the budget estimates. This is two per cent more than the last year in the same period, he said.

Sinha said the fiscal problem was two decades old. The country has to spend Rs 9 trillion (1,000 million = 1 billion; 1,000 billion=1 trillion) in interest payments. ''It was time to sit up to take stock of the situation and do something about it,'' he said.

Sinha said Rs 460 billion go toward defence spending and Rs 260 billion toward food subsides. Therefore, flexibility for planned expenditure was very small.

Orissa cyclone likely to affect farm output

Sinha said he expected the Orissa cyclone to affect farm output but he expected agricultural production to be higher than in the previous year. He also expected turnaround in industry and services to mitigate the damage done by the cyclone.

Referring to yesterday's landmark agreement on tax reforms with states, Sinha said what had been achieved was remarkable.

The issues on which consensus had been reached were extremely complicated. It took five years and a lot of work to reach a tentative agreement, he said.

Sinha said the government will try to meet the divestment target this year to the tune of Rs 100 billion.

NTPC-NHPC deal not a case of cross-holding

Referring to reports of National Thermal Power Corporation acquiring National Hydro Power Corporation for Rs 45 billion, Sinha said there has been some talk and said this did not amount to cross-holdings.

Sinha said the government was committed to devolving 29 per cent of the total tax cellection to the states as recommended by the tenth Finance Commission.

He said the special problems of the North-East were being looked into and efforts will be made to help them out of their financial difficulties.

The finance minister said states which have signed a memorandum of understanding with the centre, should fulfil their commitment. In the case of failure to do so, the centre would not grant any special assistance.



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