Business Today: Editorial

Strike While The Iron Is Hot

It is a measure of the abysmally low standards of performance we have set for ourselves that we are rejoicing over the fact that the beleaguered privatisation bus is finally moving. In first gear. And just look at what's happening on the other side of the Bamboo Curtain. Around the same time as privatisation of eight hotels of hospitality major India Tourism Development Corporation's (ITDC) draws to a close (after much needless agonising and pointless resistance), Communist China will be holding its first auction of the assets of loss-making state-owned enterprises to foreign investors. The China Huarong Asset Management Corporation (CHAMC), a 100 per cent state-owned financial enterprise, has been given a free hand to sell these assets at whatever price it gets. It is widely expected that these assets will be sold at a steep average discount of 60 per cent. The CHAMC has been given complete freedom to accept whatever bids it gets. No market dampeners like reserve price and no breast-beating over asset-stripping by foreigners. Pure, undiluted pragmatism. The government needs to cut its losses, and, by Deng, it's going to do that, no matter what it takes. No more throwing good money after bad. Out here, Disinvestment Minister Arun Shourie still has to battle socialist mindsets as our antiquated left brigade and other rent-seeking politicians and bureaucrats accuse him of selling the family silver dirt cheap. Never mind that the silver is duller than the battered aluminium vessels in which food is served in our jails.

Loss-making central public sector undertakings (PSUs) number 116. Against a paid-up capital of Rs 26,815.33 crore, the net loss amounted to Rs 10,904.34 crore. Loans and interest to the tune of Rs 6,062 crore have been waived in 1999-2000 alone, while another Rs 5,079 crore were provided for repayment of loans. Is it any wonder that our PSUs are called bleeding ulcers? Figures like these should make people tell Shourie to hurry up and privatise. But no. The latest whisper campaign is about how this is not the right time to sell ITDC. The hospitality industry, the argument goes, is going through a slump and the government will not get a good price. Ergo, it's better to wait for some more time.

There are two problems with this line of argument. One, the price fixed in a strategic sale doesn't depend on the state of an industry at a particular point of time. Strategic investors buy into businesses, not in order to make a killing after a few months, but with a long-term vision. If Indian Hotels or the Oberoi group offer a low price for, say, Delhi's Ashoka Hotel, that will be because their calculations show that is what it is worth, not because the market is depressed. In any case, they will spend time and money on bringing the hotel up to their performance standards and yield handsome returns several years down the line.

Secondly, the right-time argument applies more to cases where shares are being offloaded in the market. But even that line of reasoning cannot be carried too far. Given the extreme volatility of markets, can anyone forecast a right time? South Africa is going through that debate right now. The government there recently put off an initial public offering of Telekom South Africa (TSA) because of the depressed state of the global telecom industry. After selling a 30 per cent stake to a private company in 1997, the government had promised to list TSA publicly by the end of 2001. Now, the listing is being put off to March 2002.

It's unlikely that this will help as experts are pointing out that the right time has gone. India faced similar problems in the case of the offloading of Videsh Sanchar Nigam Ltd shares in 1994, and Gas Authority of India Ltd shares in 1997.

It is high time the Indian political establishment realised that sometimes even a bad privatisation is good for the country. It gets the government out of areas it has no business to be in and enables money to be used more productively. Time is running out. As King Elvis Presley sang: ''It's now or never.''

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