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Disinvestment disappointment - Views on News from Equitymaster
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  • Sep 14, 2002

    Disinvestment disappointment

    Having slowly found its feet over the past two weeks, markets once again tripped, as a spanner was thrown into the 'disinvestment' works. Adding to the gloom was 'war talk', west of the Atlantic. Consequently, crude oil prices have been firming up, threatening to further dibilitate the global economy.

    Coming into the week disappointed, investors' in unprecedented fashion, dumped public sector (PSU) stocks, especially Hindustan Petroleum (HPCL) and Bharat Petroleum (BPCL), which collapsed at start of the week. The BSE Sensex fell by over 1% this week. Section of investors and media got one more reason to malign the Government.

    We have maintained that disinvestment historically has been a 'random event'. Not being an insider, one cannot possibly perceive the 'risk factors', which could de-rail momentum of the programme. A perspective of the challenges has been highlighted by the Minister of Disinvestment in a leading business magazine. Having said that, we reckon, the Government recognises that disinvestment -- now privatisation -- is a question of not 'if' but 'when'. Consequently, short-term bets could back-fire but a long-term horizon could result in better outcomes.

    On the subject of 'when', progress in a developing democracy is hostage to consensus building, leaving aside in-sincere intentions (and there is lots going around) and therefore decision-making takes longer. The three month deferrment of the programme, it seems, is to re-build consensus on privatisation among coalition partners and especially within the ruling party. Opposition was not towards disinvestment, which could be sale of Government holding to the public, but towards privatisation of public assets. On the other hand, we always compare with China and momentum of economic development achieved by that country. But then China is under military rule and building consensus may not be a priority. Some reports suggest, China has the largest number of state executions, which could indicate 'my way or the highway' approach. Therefore, India needs to recognise that while freedom must be enjoyed it must also be respected, especially by those who could be sabotaging Government efforts on privatisation.

    Over the nineties, political & mass consensus has shifted from a socialist mind-set to a more market driven ideology ('capitalism' still seems to be a bad word). Thinking shifted from Government ownership of assets to true public ownership -- sale of Government equity to financial institutions and the public -- to raise resources and increase PSU accountability. This thinking has now shifted to strategic sale -- privatisation -- of Government assets. In addition to the above benefits, privatisation leads to better allocation of resources. Also, tax payers' money is not required to be exposed to the 'commercial risk' of business.

    While disinvesment targets have not been met in the past, one should also consider that the Finance Minister could very easily set an achievable target. Over the past two years, resources have been unlocked from public assets not through public sale of equity or PSU cross holdings but through privatisation. The number, as a percentage of target has also been increasing.

    That said, supporting Government action runs the risk of diluting urgency in reforms, as one tends to become complacent. Therefore, a discerning populace is required to determine a fine balance of 'carrot & stick' approach. And in last resort, should the Government reverse decisions supported by the majority, the mandate to govern can be offered to party/ies with more alligned ideologies.



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