Divestment Can Wait Till Free Lunches End

The annual economic editors' conference held at New Delhi last week was an occasion for introspection. Finance minister Yashwant Sinha announced at the inaugural session that he would not only reach, but even exceed the target for divestment of government equity in public sector undertakings (PSUs).

One had serious doubts about the finance minister's claim and the optimism underlying it. The capital market is still very subdued. Only about six months of the current financial year are left and not a single PSU share has so far been disinvested. And the target is to raise Rs 7,000 crore from the sale of PSU shares in 1998-99.

 

Finance secretary, Vijay L Kelkar, gave some indication of how the government proposed to meet the target. The government would bring down its equity to 49 per cent in identified PSUs by bulk divestment of shares in favour of special purpose vehicles (SPV), to be floated by a clutch of financial institutions. In this process, the government would meet its divestment target and the special purpose vehicles would be able to subsequently sell their shares to prospective buyers as and when they get a good price.

However, one was not convinced by either Mr Sinha's optimism or Dr Kelkar's explanation. The truth is that neither the politicians nor the bureaucracy today is mentally prepared to let go of their control over PSUs. For well over five decades, ministers and their senior officials have developed a cosy network with PSUs, which may get dismantled once the latter are privatised. Privatisation may be a desirable goal. But many of them are not fully reconciled to the consequences it would have for their daily functioning.

A good reason why the government may not be prepared to go ahead with the proposed privatisation plan became clear over the lunch that followed Mr Sinha's session at the economic editors' conference. Officially, the lunch was hosted by the commerce ministry. But the bill for the lunch was picked up and settled by MMTC Ltd, a PSU functioning under the commerce ministry.

One wonders if MMTC Ltd would offer to pick up the lunch bill once it is privatised. It is also doubtful if the commerce ministry would ask MMTC Ltd for such favours. Today it can do so with confidence because MMTC is under its administrative control. Why then on earth should bur-eaucrats and ministers let go their control over public sector undertakings?

And why only talk about lunches? The list of benefits the ministers and bureaucrats enjoy at the cost of PSUs is a long one. Ministers, secretaries and senior officials of the government have easy access to the car pool of the PSUs under their administrative control. It is not rare to find any public sector unit to have loaned out a few of its cars to either a minister or senior officials of the ministry under it functions. The PSUs bear the expenditure, and the minister and his officials reap the benefits.

There have been several instances where ministers and the ministry's senior officials have gone abroad, or even stayed in hotels within the country, all at the cost of PSUs. Some ministries get even their annual reports printed by the public sector units under their control. The expenditure incurred on such activities is borne by the PSUs. The obviously weak explanation offered in support of such blatant misuse of PSU resources is that the ministries do not have adequate budget to undertake such activities.

Ministries have begun relying on the public sector units for undertaking such activities so heavily that they have developed a vested interest in perpetuating the government's control over them. Disinvestment Commission chairman, G V Ramakrishna, is right when he says that PSUs should not be freed from the overall supervision of Parliament, the Comptroller and Auditor General of India and the Central Vigilance Commission, till they are completely and truly privatised.

The proposed SPV route might appear to distance the PSUs from government, but the ministers and bureaucrats will continue to wield control over them through SPVs also, because these will be largely controlled by state-owned financial institutions. The only change that will take place is that instead of different ministers and their respective secretaries, it will be the finance ministry alone which will enjoy tremendous clout over the PSUs to be privatised through the SPV route. It is, therefore, important to recognise the strong nexus the ministers and bureaucrats have built with PSUs. Any move that does not break this nexus will fail to achieve the goals expected of privatisation.

In his first news conference after taking charge as finance minister, Manmohan Singh had coined two new slogans in support of his reforms strategy -- one, India cannot be truly sovereign as long as it goes to Paris every year with a begging bowl before the Aid India Consortium and, two, there can be no free lunches in an efficient and reformed economy. By the end of his five-year long stint as finance minister, Dr Singh had virtually ensured that there was no need for India to seek aid from developed countries. In fact, the Aid India Consortium was dismantled and the India Development Forum was created in its place.

But the notion that one can have free lunches is far from being banished from this country. The public sector is one major source that provides the so-called free lunches to our ministers and bureaucrats. One of the many benefits that will flow out of genuine privatisation (and not necessarily through the SPV route) is that Manmohan Singh's dream of banishing free lunches from the Indian economy will be fulfilled.