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Money > Interviews > Arun Shourie
August 16, 2000
'Why not look upon divestment as changing one asset for another?'
Y Siva Sankar's interview with Union Minister of State for Divestment Arun Shourie continues.
Part I: 'There is a general political consensus on divestment'
Political management seems the biggest challenge before you. How do you plan to tackle it?
It is hardly something at my level. But one of the things I would certainly do is to explain the facts of life much more to all sections. That if you take away the monopoly units or the units where there is a monopoly as in the petroleum sector, as in power, actually the rate of return is minus 3.9 per cent, profit after tax over net sales. This against the government borrowing at 12 to 14 per cent!
Similarly, the condition to which the public sector has been driven, we have just not realised sufficiently.
National Textile Corporation. It has 119 mills. Only 25 of them are working fully. Paid-up capital is some Rs 5.12 billion. Accumulated losses are Rs 73.50 billion! Sales last year were Rs 5.54 billion. On those sales, loss was Rs 10.19 billion!
And the six units in West Bengal that Mr Basudeva Acharya made much of in Parliament, I pointed out that the sales of these six units last year were Rs 96.6 million. [That's less than Rs 100 million]. On selling things worth less than Rs 100 million, these six units have performed a miracle and incurred a loss of Rs 3.57 billion! Their production being less than Rs 100 million, their cumulative losses are Rs 22.40 billion!
So many of these units are incurring huge losses. Then, they are not doing things that are of great priority or which only the public sector can do or must do.
Cycle Corporation of India. Sales income: Rs 2.7 million. Loss: Rs 560 million!
National Bicycle Corporation. Sales: Rs 5.6 million. Net losses: Rs 200 million!
Birds, Jute and Exports Limited. Sales: Rs 2 million. Loss: Rs 40 million!
Cement Corporation of India. Sales: Rs 2.11 billion. Loss: 1.85 billion.
Tyre Corporation of India. Sales: Rs 520 million. Loss: Rs 620 million!
Tannery and Footwear Corporation of India. Sales: Rs 8.9 million. Loss: Rs 290 million!
Neither is the financial condition such that you can sustain these forever nor is the activity such that it requires public sector presence. So actually one of the things to be done is to explain these facts of life to the people.
Do you think people will accept these facts and your case for divestment? For instance, Chandrababu Naidu is against RINL divestment in Visakhapatnam. Mamta Banerjee is against Balco divestment in West Bengal.
I don't know. You have to see the enormous amounts of losses and explain to the people also that if something is incurring a loss of Rs 10 billion, is that the way to keep even those few remaining jobs?
It is the weakness of the political class that they don't want to take the trouble with the organised labour in the public sector. I feel this is one of the central features of India today. That is, a weak political class and secondly, the State is very weak vis-à-vis its own employees. So you can't downsize government. You can't corporatise electricity boards. You can't close or stitch up these haemorrhaging wounds. You can't cut subsidies. You can't end poverty programmes. You just give, pour, throw so many funds into that side and convince yourself that you are doing something to eliminate poverty. Some Rs 100 billion a year to a single ministry but little monitoring... So you have to go on explaining these to the politicians, to articulate sections within the literate classes of India.
But this [running of inefficient PSUs] is actually a way to bankrupt the country, and not a way to help the poor and the labour and so on. And actually if you look at the average emoluments of people in the public sector, they are much higher than... by which definition would they fit in with the poor and so on?
One of the interesting things that we don't realise is that there has been a history of restructuring and revival. That is not as very focused on as we should focus on.
Hindustan Shipyard. I've been able to get only the post-1995 figures. Two attempts have been made since then. Paid-up capital of Rs 4.71 billion. Today, the net worth after those two attempts is minus Rs 9.88 billion. Accumulated losses are Rs 10.85 billion.
Bharat Refractories. It had two revival packages in 1996 and 1999. Net worth is minus Rs 290 million. Accumulated losses: minus Rs 1.51 billion.
Rashtriya Ispat Nigam which you referred to earlier. Capital restructuring was done in July 1993 and May 1998. Accumulated losses: minus Rs 40.54 billion.
Instrumentations, already a BIFR case since 1993. Accumulated losses: Rs 730 million.
Mining and Allied Machinery Corporation. Several revival attempts were made: 1973, 76, 80, 86... Net worth: minus Rs 8.81 billion. Accumulated losses: Rs 9 billion.
Heavy Engineering Corporation of India. Six attempts. In 1972, 75, 81, 89, 97 and 99. Result? Accumulated losses: Rs 10.95 billion.
And so on. Now, this can't be that nobody was sincere in trying to revive these units. We have to infer a lesson from all this. And these facts must be explained 20 times. If the polity still doesn't want to change things, what can we do?
For that reason, we have been talking to Opposition leaders. I've sought time with Mrs Sonia Gandhi because she happens to be the Opposition leader in the Lok Sabha. Of course, I've been in touch with Dr Manmohan Singh and trade union leaders. We must try and reach out to everybody.
I'm a great believer in breakdowns. We have been shouting for liberalisation for 30 years. Nobody listened. I was condemned of "Swatantra Party rhetoric". And now everybody says socialists are the great champions or flag bearers of liberalisation. Why? Because of the breakdown in the external account in 1991.
And the coming bind of finances at the Centre and the states is going to provide another compulsion and, therefore, another opportunity for these second generation of reforms to go through.
In psychiatry, they say that every breakdown is a breakthrough. So we should make these reforms and necessary changes in policy a part of public discourse so that when the extreme difficulty comes, we could do it without pain because we are accustomed to that idea.
What is the current policy?
The current policy is, yes to strategic sales. But in strategic sectors, no disinvestments at the moment. Strategic sectors are defined as defence-related, atomic energy excluding some mini tools, nuclear power, railways. Other than these, in the generality of cases, the government share is to be brought down to 26 per cent or less. But this is not to be done automatically.
Two points are to be kept in mind. One is, whether the countervailing presence of the public sector is necessary in that sector for preventing market dominance. Second point is, whether a regulatory mechanism should be put in place before moving out of that sector so as to protect the interest of the consumers.
What has been the response so far from Opposition leaders to your initiatives?
The compulsion of circumstances is evident to everybody. But two-three difficulties are there. One, they want these things to be done over their protests so that they can blame it on you, blame it on somebody else... something like: "Hamnay tho protest kiya tha, par yeh paagal log hai. Yeh country ko bhej rahe hai." [We did protest. But this is a mad government. They are selling the country.] Like that. So that they are not regarded as anti-labour... They don't get that label of being anti-worker.
Are you hinting that the so-called "big-ticket" divestments are imminent?
I'm not implying anything of that kind. I would not like to build up great expectations because that is always counterproductive. One, it gets the administrative ministries' back up. Two, when you build up great expectations and those things are not done, then there is a sort of recoil. It is better that things should get done without great fanfare.
Have you set yourself any timeframe to reach a certain target?
The targets have been set by successive finance ministers. Ever since the 1991 interim budget, they said Rs 25 billion, Rs 30 billion, and so on. This time, it was Rs 100 billion. So these are the targets.
What do you have to say on the view that divestment should not be a means to fill up fiscal deficit, that it should be de-linked from budget balancing?
That is a view that is expressed. A target certainly does not mean you must go in for a second-best or third-best transaction or arrangement... just because the target has to be met. The finance minister would not want that done. Everybody is concerned that the country must get the best value for the assets and the best arrangement for that particular establishment like whether or not the workers would like to continue or whatever. So the targets should be seen in that sense.
But I also do not want to underestimate the necessity to fill fiscal deficit. Let me tell you how much of a bind central and state finances are in. Half of the revenue of the central government goes into just paying interest. If you take interest and repayment of principal, it exceeds total revenue. Or almost equals total revenue.
In the case of the states, the total outlay was Rs 3.5 trillion [100,000 = 1 lakh; ten lakhs = 1 million; 1,000 million = 1 billion; 1,000 billion = 1 trillion]. The states were to contribute from their own resources only Rs 38 billion or just about one per cent. And what is their actual contribution? Minus Rs 800 billion! That is in the first three years of the Ninth Plan.
Now, if, in this sort of a background, somebody sets a target for disinvestment because this is one way of mobilising resources, it should not be made light of. All these facts should be kept in mind.
In the context of divestment, one often hears of family silver being sold. Do you think there is substance in this line of thinking?
We have become prisoners of words. Do you need haemorrhaging units like these? Are they family silver? Certainly, no middle class household will keep silver to such an extent that they have to bankrupt themselves just to keep it in the house.
Why not look upon divestment as changing one asset for another asset? In Delhi, we have one unit called Hindustan Prefab Limited. What do they do? They make these cement electric poles and cement sidings for railways. Not of a great strategic importance. They have 30 acres of land in Jungpura Extension near Nizamuddin railway station. Supposing this firm were closed, and those 30 acres were given to the railways to build a larger Nizamuddin station, which would reduce congestion at New Delhi railway station. Are you selling family silver? You are transforming one asset into another asset. Why not look at it that way?
So in India we have become prisoners of slogans like anti-poverty schemes, garibi hatao, socialism...and see the consequences.
So the task for all of us is to penetrate behind these slogans and show the real facts.
What is the government's latest thinking on Air-India?
The advisors are at work. The officers are putting together various kinds of proposals. Then they would come to me and eventually these will be directed to the Cabinet. But the advice of these advisors and their consultations are processed at many levels. There is an inter-ministerial group which is headed by the secretary, disinvestment, and consists of joint secretary and additional secretary level officers of different ministries including the administrative ministry which is the civil aviation ministry. Their recommendations then go to the core group of secretaries. Then they come back to the Cabinet Committee on Disinvestment through the disinvestment minister. So it is long process.
In the case of Air-India, routes have to be valued, unused routes and all that. It is a long process.
Yes, it is a long process that people call inordinate delays, sometimes even in the appointment of global advisors.
Not at all. All of them have been appointed. For 17 firms, they have been appointed. For two, they are being appointed.
This "inordinate delay" is actually a result of an artificial build-up in the media. Something like: "Something big is going to happen in the June 23 meeting of the CCD". Ek gawandhi hai: aap hi peeway, aap pilaway, aap khud hi mathwala.
First they publish a speculative report. Then they will start criticising the government [for not doing anything to prove their speculation right]. I saw a report in an economic newspaper sometime back. They built up false expectations about the June 23 CCD meeting. Then they said kuch nahi hua [nothing has happened].
On the third day after being given this charge, they said "damp squib" editorially. How? I don't mind being a damp squib. But what was their ground? The ground was that I had said that let's take everybody along. This is not talking of big-ticket reforms. On the third day, there was another story. 'Since this fellow [Arun Shourie] has come [to the helm of divestment department], share prices of public sector units have fallen.' All the figures they gave were of May and June, when I was not in the picture at all. [Laughs].
Mr L K Jha once said that what was investigative journalism had become imaginative journalism. It has now become instigative journalism. [Laughs]. Talking of you as a damp squib or something, they feel that they will be able to push you into doing something swiftly.
Do you have a strategy to take along with you vocal groups like the Swadeshi Jagran Manch which have reservations over the divestment policy?
I don't see any difficulty in doing that. I'm in constant touch with them. [SJM convenor S] Gurumurthy is one of my dearest friends.
Is that fact a big help?
Not at all. They have their own point of you. They have their own convictions, their own reasoning. Each one tries to persuade the other. But none of us doubts the intention of the other person.
I was not made the divestment minister because Gurumurthy is one of my friends. That is not the case. Gurumurthy has clarified SJM's stance on disinvestment.
They are not opposed to disinvestment in principle. I am sure that if they have strong views, they would not be swayed by personal friendship.
The issue of workers' interests is causing differences among the Cabinet ministers over divestment. How do you plan to address this problem?
By doing everything possible to explain the situation to them. Everybody is realising that the best way to save jobs is by transforming these sick firms into vibrant firms. That is the best security.
If changes have to be made, they should also assess it from their point of view. There is a fear of change. We have got ourselves into a mould. There is an industry in India to frighten people about the future. 'Green Revolution aayegi, land will become productive. It will become more valuable. The rich will buy out the land of the poor. Punjab will go red.' Did that happen? Land became so valuable that nobody in Punjab would sell a plot of land. But we have an industry on that. 'WTO. If you take a neem ki dhaathey, you will have to pay royalty to multinationals.' These were the slogans. What has happened? In matters like these, we should have a positive attitude to change. It is inevitable.
Investments are not possible from within the government sector. If somebody comes and improves our work culture, what's wrong with it?
Supposing the worker does not want to work with the new management, then you must be able to provide him with a good VRS. And for that, one of the important things is to, unencumber assets like land that the unit might have, as in the National Textile Corporation. One of the things that the group of ministers has done is to request two members [HRD Minister Manohar Joshi and Textiles Minister Kashiram Rana] to go and talk to the Maharashtra government and see if the land there could be unencumbered so that you get enough proceeds to look after the workers' interests and even to rehabilitate those units which can be revived.
I think if the effort is made at the unit-to-unit level, the chances of reconciling disinvestment and workers' interests would be much better. Then people working in the unit will know, 'Yes, our factory is closed. What we would do is take auctions.' So if others like politicians instigate them or frighten them, then naturally the poor workers will get frightened and take rigid positions.
Now, for instance, I hear that these Left parties are planning to organise a three-day strike at public sector units. What would be the net result of this three-day strike? The units will be in worse condition after the three days financially. Some interruption will have taken place in every unit. And if divestment becomes something inevitable, then you are just lowering whatever value there is to the unit, and making it less attractive for prospective strategic partners.
Signals emanating from within your government are often confusing. Prime Minister Vajpayee says PSUs should pull up their socks. Public Enterprises Minister Manohar Joshi says it is the duty of the government to ensure people's welfare by offering employment in public sector units. Petroleum Minister Ram Naik is against divestment. And Divestment Minister Arun Shourie is all for divestment.
[Smiles]. I am not saying that divestment should be done at any cost. It is a government policy. Look at the inevitability of thhe situation in which it is to be done. So we have to persuade everybody. Maybe there are different signals, but I'm sure, if you ask the leaders themselves, they will be able to explain that there are no differences. A harmonious construction can be put on such statements.
What is your view on the demand that proceeds from divestment should be ploughed back into the same unit?
Not into the same unit. But it is being considered if you have a subsidiary. The BIFR route is by subsidiary as such, not every factory by itself. Now, in the subsidiary, if there are some factories that can be revived by selling off other factories, or if a subsidiary as a whole is revivable, then that attempt is certainly to be dealt with. If large assets are available, for instance, if land were unencumbered, and if you had unrestricted change in land use, then the resources that could become available for the textile units even in Maharashtra, would be of such an order that it could actually revive a large number of units.
But it is better not to lay down a great rule on that but to proceed unit-by-unit.
Which do you think is better -- driblets of disinvestment or outright privatisation?
The choice at the moment is between driblets or the disastrous minority sales that I discussed earlier and finding strategic partners. And on all counts -- be it the Rangarajan Committee's report of 1993, or the Disinvestment Commission's recommendations, or the market situation itself -- it is clear that finding strategic partners is a better route.
Not all the recommendations of the Disinvestment Commission have been implemented.
There are cases that have been referred to the disinvestment department from the ministry of heavy industries. Everybody keeps saying that Mr Manohar Joshi is against some cases. But these are precisely the ones that have been referred.
Have you had any meetings with former Disinvestment Commission chairman G V Ramakrishna?
Not since I've taken charge of this department, but we have been in touch with each other. He is the person I've known for many years. I've very high regard for him. It's just that I've been preoccupied... He is coming to Delhi soon and we will certainly be meeting.
Do you think the Department of Disinvestment should be wound up after a fixed tenure?
That's what happened in Germany... Treuhand... They completed their task, I think they sold off some 17,000 firms and then wound up. In India, everything takes longer.
The PM led a high-level delegation to Italy in June. It was said India would learn a few lessons from Italy's success at divestment. Have any lessons been really learnt?
I've read literature on that. There are quite a few success stories. ENI was a very good idea. What they did was, they divested in bits and pieces. But because the confidence of the investing public was high, each time they divested, it was taken as another sign that management is being transferred. At every stage, people saw management changing, work culture changing. So we got to learn from many countries.
The first thing is to learn from our own experience. The facts are staring us on the face, the revival packages have not worked... I studied 23 revival packages since 1992-93. Rs 340 billion were sunk in. What happened to these units into which these billions were sunk? The second thing is to see that the necessity is the same for every political party. Wherever it is in power it is doing the same thing and opposing it elsewhere. Why don't we learn from that simple fact?
Petroleum Minister Ram Naik says public sector oil companies played a key role in ensuring supplies during the Kargil battle. According to him, for security and strategic reasons, the sector has to be in government domain and no divestment should be done.
As the matter is under consideration, I should not comment. But certainly, Mr Ram Naik's is a very important view. But the decision on placing 10 per cent GDRs of Indian Oil Corporation is already there. Yeh tho aaj ka decision nahi hai, pehle ke decision hai. But we should also see that wherever there are no strategic risks, we have done it. Exploration has already been opened up to private sector and foreign investment. Refining, we have already opened up. In distribution, IBP, which is the point under consideration, there are about 1,450 petrol pumps... that is five per cent of the retail outlets only in India. Of these five per cent, only 10 per cent of 1,450 petrol pumps are IBP-owned. The rest are with franchisees. Tomorrow, after your APM [Administered Price Mechanism] ends in March2002, and Reliance comes in and sets up its own retail outlets and takes away your own franchisees by paying something -- something the public sector can't do -- then what will be the value you will get for IBP?
So these are arguments pro and con before the Cabinet Committee on Disinvestment. I don't think that rigid positions will help.