60 Minutes: "Autonomy For PSUs Will Not Work"

60 MINUTES: ARUN SHOURIE
"Autonomy For PSUs Will Not Work"

As the enfant terrible of Indian journalism, Arun Shourie, 59, battled the Establishment. And now that he's part of that very Establishment, he's been given the task of reforming it, with responsibilities of the department of disinvestment, planning and programme implementation and of administrative reforms. In this interview with BT's Seetha, Shourie shares some of his out-of-the-box ideas on disinvestment and despair at the way the government functions.

Q. The government is moving ahead on privatisation but the pace is very slow.

A. Over the years, there was a lot of talk and little was done. Now that decisions have been taken, the work is very complicated. Valuations, preparing documents, technical bids, each shareholder's agreement runs into 200 pages. In the case of Air India, how do you value unutilised bilaterals? What about potential bilaterals? The sectoral cap for foreign investment in the civil aviation sector has not been defined, but here we have put a cap of 26 per cent. There are several such issues.

Besides, it has taken 10-15 years in every country. I am not at all discouraged by this pace business.

The finance minister has set a target of raising Rs 10,000 crore from privatisation. This is needed for retiring public debt. Can we raise this money?

But the debt is so huge that using these small proceeds of disinvestment for retiring public debt is like throwing a bucket of water into the ocean. Using the funds for rehabilitating public sector undertakings (PSUs), which is the second objective he has mentioned, is like throwing the bucket into the Brahmaputra. It makes no difference. Either to the sea or to the Brahmaputra. So why not use it for social sector investment alone? You actually make a difference there. I have proposed that, let us see what the cabinet decides.

What should be the rationale for disinvestment? Is it to get the government out of business or...

That is a very important reason. The second rationale is the history of rehabilitation packages in regard to PSUs. It has just not worked. In the last nine years, 23 packages costing Rs 34,000 crore have come and gone and the PSUs are the way they were. Is it that everybody who implemented those packages were scoundrels? It cannot be. The reason must be that governmental structures have become such, labour practices are such that we are not able to revive these psus. Hence disinvestment.

The Standing Committee of Public Sector Enterprises (Scope) has not been in favour of disinvestment.

Yes, I went to them. They started showing the old slides. And I had to ask them, do you think that I don't know there are three forms of disinvestment? They said proper valuations should be done. Who says it should be improper?

On the one hand they said give more autonomy. Then they show another slide which says ''have a central unit which alone will determine how restructuring should take place''. The same unit will do it for Hindustan Vegetable Oil and sail.

They claim PSUs can be profitable if they are given more managerial autonomy.

Hasn't that proposal been made for 30 years? And what has come of it? Nothing. So shouldn't we learn something from that? When I ask Scope why do you think that your proposal for autonomy will now work more than it has worked for 30 years, there is no answer.

Why not sell the loss-making PSUs first?

But who's going to buy them? And supposing a vegetable oil corporation is making profit, do you want the government to go on making vegetable oil? Some PSUs make hair oil. There is a National Bicycle Corporation, a Scooters India, and Andrew Yule. What do they do? There is a Rs 700-crore company which is a subsidiary of IBP-Balmer-Lawrie. It makes tin cans, containers, and runs a travel agency. It is a profit-making company. But should the government be in that business at all? That's the second consideration. IBP is a profit-making company. But you have already opened up oil exploration and refining to foreigners. Why not retail trade? And if it is alright to open up retail trade why restrict it to domestic players? Then there will be only one or two bidders and you will be accused of tailoring things for Reliance.

When disinvesting, how does the government take care of this monopoly issue?

That should be an important consideration. That is why in the case of Indian Airlines, it has been provided that Indian scheduled airlines cannot bid. Secondly, with most items now on open general licence, you import to dampen monopoly. Third, where such a situation is liable to arise, we should put in place a powerful autonomous regulatory authority before withdrawing.

In a case like IPCL disinvestment, where the monopoly issue will come up, would either of these options be used?

We can also have a more creative solution which I am going to propose to the Cabinet.

Why is the disinvestment process getting delayed?

The problem here is that the monopoly issue was not addressed at the pre-qualification stage. And Indian Oil Corporation was misled into believing that their bid would not be accepted because the government policy is that PSUs cannot bid for PSUs. But you've just allowed four stand-alone units to go to the PSUs. So I think IPCL will have to be looked at again.

There is often criticism about companies being sold cheaply. Modern Foods, for example. Air India's value is being put at Rs 24,000 crore. How do you address the problem of valuation?

On valuation, the general principle is it will be valued by different methods. Market capitalisation, book-building, asset-valuation. In the case of the Air India, where does that figure of Rs 24,000 crore come from? I asked the Indian Pilots Guild and another union which came to me. I asked the Hindustan Times correspondent who wrote about it: ''how do you say Rs 24,000 crore?'' They said they'll get back to me. Two months have passed, no one has got back. But the figure is repeated. This way we vitiate public discourse.

Should PSUs be dressed up or restructured before privatisation?

Restructuring was done in the case of British Steel. But those practices are not replicable here. The British government hired the best manager, gave him full authority to select his team, hire and fire people, raise money. Here the appointment of two joint secretaries in the Department of Disinvestment is going on for two months now. Yahan kaun freedom dega to restructure (who will give the freedom here to restructure)? That will become yet another 25-year plan!

You are also minister for administrative reforms. Haven't you been able to cut down red tape?

Nothing at all. Not at all. I just keep highlighting these facts to everyone's amusement. But that is all.

You have been talking about open auctions. Why do you favour this method?

Open auctions are used when finding a strategic partner. You say file expressions of intent by a certain date. You weed out frivolous applications. Having shortlisted some firms, you ask for technical bids which will include a business plan. These plans are to be assessed. And then the government will shortlist five companies. Now comes the price bid. The traditional Indian practice has been to invite bids in a sealed envelope. They are opened and you have to give the contract to the highest bidder. In Britain, they said we won't give it to the highest bidder in the first round. We will announce the highest bid and that can be bettered by 5 pm the next day. Then let everybody better this again.

In the 3G licences in Britain, there were 152 rounds for seven weeks. The government got Ł27 billion against the target of Ł3 billion. Germany did the same for broadband and got $48 billion instead of the estimated $10 billion. No question of scandal. It's all in the open.

In India, keeping in mind what happened in the telecom sector, where they bid high for licence fees and couldn't pay, in each round the bidder must bring a bank guarantee so he can't back out later.

Former Disinvestment Commission Chairman G.V. Ramakrishna has argued that if a bidder knows that there will be many rounds, he will not make his highest bid to begin with. And along the way there can be collusion between two or three potential bidders, that you leave IBP to me and you take IPCL. But my point is that kind of collusion is said to routinely arise in the case of the sealed envelope procedure also.

Has the government decided to drop the idea of piecemeal offerings and go in only for strategic sales?

No.

Which sectors will have strategic sales and which will have offloading of shares?

It cannot be sector-wise. It has to be more specific. Take National Fertilisers. Three plants are working poorly and one plant is working well. If you go for strategic partner, he will go only for that one plant. What do you do with the loss-making plants? If you go for public issues, no one will buy them. Then you will be accused of selling at a low value.

When you took over the department, you said you would work for a consensus. Is there still a lot of opposition to the idea?

I found these are matters on which opposition is based on lack of information. Or opposing for the sake of opposing. I've often argued that actually there is consensus on economic policy but by this habit of opposing what the other fellow says we are creating a dissonance and preventing the progress of those policies. So please act on the consensus. Everybody should realise there is no alternative.

I am talking to the Swadeshi Jagran Manch and the RSS. Also the Congress.

How do you deal with opposition within the Cabinet from ministers like Sharad Yadav, Ram Naik, and Manohar Joshi?

Everybody has agreed now.

So can you say the government can conclusively win the battle of the mindset?

No, I am not into winning battles. But people are now accustomed to the idea of privatisation. If there are a few successful cases in the next six months, then this fear of jumping into an abyss would go. The country would gain confidence that we can do it and the firms are being turned around. That is the key.

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