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Slowdown remained stumbling block for divestment

Global slowdown and a bad investment climate became a major stumbling block for India's divestment programme in 2001 despite high priority given by the National Democratic Alliance government to the privatisation of the public sector units.

While Divestment Minister Arun Shourie succeeded in getting his ministerial colleagues round to divestment with an unstinted support from Prime Minister Atal Bihari Vajpayee, worldwide recession in many critical sectors of the economy evoked a lukewarm response from the bidders.

Air-India

The biggest setback to the privatisation programme came in December this year when the Tatas finally pulled out of the sell-off plan of the Air-India after they failed to rope in an international partner in the recession-hit aviation sector.

Since the success of the Air-India privatisation would have given a boost to the divestment policy and the second generation economic reforms, the government, left no stone unturned.

Shifting Sharad Yadav from civil aviation to the labour portfolio was also largely seen as removal of a hurdle in the Air-India sell-off.

To their credit, Tata Sons continued their effort to replace Singapore Airlines with another partner in their consortium, which made a serious bid for buying the controlling stake in Air-India.

Indian Airlines

The government also had to abort the divestment of the domestic carrier, Indian Airlines, for lack of buyers who could qualify the tough national security concerns.

Ashok Leyland, which showed all their intentions to buy the managing stake in the Indian Airlines, were dropped since their owners, the Hindujas, were disqualified on the criterion of national security.

Videocon, another bidder for Indian Airlines, had to leave the race since the Securities and Exchange Board of India had indicted the company for insider trading.

CCD shortlists 13 PSUs

The year 2001 saw many meetings of the Cabinet Committee on Divestment sorting out many of the procedural issues and clearing some well-known companies for privatisation.

CCD shortlisted 13 well-known PSUs to be sold in the fiscal year 2001-2002. At the insistence of the prime minister, the CCD had prepared a time table for each stage of divestment of these companies.

The 13 companies identified for sell-off in this fiscal are: Bharat Heavy Plates and Vessels Ltd, CMC, Hindustan Zinc Ltd, Hotel Corporation of India, HTL, IBP, Indian Petrochemicals Ltd, India Tourism Development Corporation, Instrumentation Control Valves Ltd, Jessop and Company, Maruti Udyog Ltd, NEPA and VSNL.

CMC, HTL, ITDC

So far the government has been able to privatise CMC, HTL and some properties of ITDC, including Hotel Ashok in Bangalore, and hotels in Mahabalipuram and Madurai.

The CMC was sold to the Tata Consultancy Services while HTL went to the Himachal Futuristic Communication Ltd.

VSNL, IBP

International telecom carrier, VSNL, and petroleum products retailing company, IBP, have reached the advanced stage of divestment.

According to Shourie, the financial bids for these companies would be invited by January-end and the privatisation process completed within this financial year ending march 2002.

Maruti Udyog

For the sale of Maruti Udyog, the CCD has decided to go in for a rights issue of Rs 4 billion with the government renouncing its rights and bringing its equity below 50 per cent in the joint venture with the Suzuki Corporation of Japan.

The divestment ministry and the heavy industry ministry are in the advanced stage of negotiations with Suzuki Corporation.

During his recent visit to Japan -- as part of the PM's entourage -- Shourie is believed to have made headway with the Suzuki management. As a measure of goodwill, O Suzuki has written a letter to the Indian government offering to reduce the royalty on the technology being given to Maruti Udyog Ltd.

Balco

Controversies surrounding the divestment, which erupted with the sale of Bharati Aluminium Company Ltd to Sterlite Industries, refused to end with the opposition slinging criticism against the government that it was selling the well-managed and cash-rich companies for a song.

Senior congress leader Manmohan Singh recently alleged that the well-managed PSUs were being robbed of their cash as the government was desperate to achieve the divestment target of Rs 120 billion.

The case in point is VSNL, which had cash reserves of Rs 40 billion. The divestment ministry, to ward off criticism of selling the cash along with the company, decided to strip the company of this money by way of special dividend to the government.

According to official sources, the government would like to add this sum while counting the total divestment target.

Hotel Ashok

The sale of Hotel Ashok, Bangalore, to Lalit Suri-owned Bharat Hotels triggered yet another controversy. Ironically, it was chairman of ITDC Ashwini Lohani who raised objections to the deal alleging that the money spinning airport restaurant in Bangalore was originally not a part of the bid from the Suris. However, Shourie rejected his criticism wondering the motives behind Lohani's charges.

While the divestment ministry seems determined to go ahead with the sale of at least 13 PSUs shortlisted for divestment this fiscal, observers feel the government might still fall short of the target. There are few buyers in the market given the demand recession. Faced with this lukewarm response, the CCD at its last meeting even relaxed the norms for the sale of Ashok Hotel, Delhi, which found no bid in the initial round.

Whatever be the pace of divestment, it is yet to make a mark as a sound and credible economic policy of the government.

Many more challenges will have to be met and milestones crossed before it gathers a momentum in the year 2002 and improves the balance-sheet of the government.

UNI

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