FM Chidambaram: Shhh, it's in the bag

Funds from disinvestment will be deployed in the social sector and to restructure PSUs

He hasn't spelt it out in black and white-not in the Budget speech for sure-but if Finance Minister P. Chidambaram has his way (and his say), he would have raised at least Rs 50,000 crore in the next seven years by selling equity stakes in some 44 public sector undertakings (PSUs) on the stock markets. According to finance ministry sources, the PSUs that could make it to the disinvestment block include National Thermal Power Corp., National Mineral Development Corp., Neyveli Lignite, Ircon, MMTC and Scooters India, undertakings in which the government has near total ownership. Meantime, in the already-listed PSUs like Bharat Heavy Electricals Ltd. (BHEL) and Maruti Udyog, a sale of minority stakes will be done either via a fresh issue of equity to the public or independently by the government through an offer for sale. Unlisted PSUs with a net worth exceeding Rs 200 crore will also be disinvested through a stock exchange listing.

The government will prepare a detailed company-wise programme with the concerned administrative machinery, identifying the quantity of shares as well as the likely timing of the respective offers and put it up to the Cabinet Committee on Economic Affairs (CCEA) for approval. "Priority would be given to those PSUs that autonomously intend to approach the capital market for issue of fresh equity,'' says Chidambaram. Once the CCEA approves the disinvestment proposal, it will be referred to a Group of Ministers (GOM) for fixing a price band and the final price.

Sounds like a dream? Perhaps, but although the fm complied with the Left's wishes and kept the dreaded d-word out of the Budget speech, he had flagged of the disinvestment wagon a month earlier with a policy paper, which was subsequently cleared by the CCEA. So, not only has Chidambaram succeeded in keeping the disinvestment wheels moving, he's also kept the Left at ease by veering clear of psu sell-offs in his 1 hour 50 minute budget sermon. He's pulled off the trick by mandating that the newly-created National Investment Fund (NIF) will be the repository of all proceeds that will accrue from the sale of equities of profit-making psus-both listed and unlisted-from April 2005. These funds will, in turn, be deployed either for the development of social sector projects or as capital in select profitable or revivable PSUs. The message for Left, for whatever it is worth: The fiscal deficit will not be attempted to be bridged with these monies.

The NIF's two-fold priority via disinvestment is clearly to provide the much-needed funds for social projects like health, education and sanitation as well as to play a role in enlarging the capital base of PSUs to finance their expansion and diversification plans. Explains Chidambaram: "The disinvestment proceeds are neither capital receipts nor revenue receipts of the government and hence will remain outside the ambit of the Consolidated Fund of India and, therefore, outside the Budget." Thus the fm has also ensured that the government will no longer have to face the old argument that disinvestment is akin to selling off family jewellery to meet current consumption.

While all this may sound great in theory, its efficacy will hinge on the quantum of investment proceeds accruing to the Fund. Already the Congress-led UPA (United Progressive Alliance) government has once been forced to defer the divestment of minority equity stakes in BHEL (10 per cent) and Maruti Udyog (7.5 per cent) in 2005-06. And then there are the comrades, happy no doubt that the d-word wasn't in the Budget, but for how long will they stay that way? Not for very long, if you listen to a vociferous Dipankar Mukherjee, Deputy Leader in the Rajya Sabha, CPI(M): "Our demand that the issue of disinvestment should be taken out of the Budget proposal has been taken care of. But our opposition to the divestments of profit-making PSU companies still stands."

Can Chidambaram keep the balancing act going, and succeed in raising the targeted resources? History isn't exactly on his side, with the actual realisation via disinvestment exceeding Budgetary targets in just four out of 13 years since 1991-92. The best year so far has been 2003-04 when the government managed to mobilise Rs 15,547 crore against a budgetary target of Rs 13,200 crore. Even if the fm collects half of that figure in 2005-06, he's clearly on course.

-Ashish Gupta

REFORMS
Ten For The Road

» A new civil aviation policy

» Amendment to the Post Office Act 1898, to take care of the needs of competition, convergence and other new developments

» A national policy on subsidies to reduce the government's subsidy bill

» Amendment to the Essential Commodities Act to free the movement of foodgrains

» An Integrated Food Law

» An Integrated Energy Policy to take care of both the demand and the supply side

» A standard model for public-private partnership in various sectors

» A National Policy on Urban Transport

» A White Paper on Disinvestment

» Roadmap for agricultural diversification

SECOND
Unbreakable No Longer
A Rs 150-crore penalty won't hurt Reliance Infocomm as much as that everyone in the government-and a few outside-is baying for blood.

Reliance Infocomm's Ambani: Can you spot the chinks in the armour?

When last fortnight, a three-member bench of the Telecom Dispute Settlement Appellate Tribunal (TDSAT) threw out a petition of Reliance Infocomm, the damage to the Mukesh Ambani-headed company wasn't just the Rs 150 crore it was ordered to pay with immediate effect for violating licensing norms. Government sources point out that Reliance's complicity has been established in the primary violation of the Unified Access Service Licence (seven clauses) and a secondary violation of the International Long Distance (ILD) Service Licence (three clauses) and the National Long Distance (NLD) Service (three clauses). As a source at the Department of Telecomm-unications (dot) puts it: "The biggest damage to the company is not the penalty, but a blow to its aura of invincibility. Other people will now feel emboldened to come forward and report corrupt or unethical telecom practices." Adds Union Minister of Law and Justice, H.R. Bhardwaj: "Unlike the preceding government, we are determined to reinforce the message that big corporations like Reliance are not bigger than the State. We have put the best legal talent and resources available-under the Solicitor General of India Goolam. E Vahanvati-to fight our case."

Tough words those, but clearly the verdict goes beyond political rhetoric; as Arpita Pal Agarwal, Telecom Consultant with PricewaterhouseCoopers, explains, it points to the maturing of the regulatory setup. "It (TDSAT) is finally getting teeth. Two years ago it was unthinkable. Licences are sacrosanct; I am not sure if the penalty is a big enough deterrent, but yes, it's a first step in the right direction."

Reliance Infocomm's crack team of lawyers, led by Harish Salve and Mukul Rohtagi, had built their case around Home Country Direct Service (HCDS)-this allows a caller to make calls to the home country of the service provider, which is carried through the ILD route-but their arguments flew in the face of a simple question: Why should you change the character of the call? A dot counsel says: "The tribunal has rejected the creative interpretation of licence conditions. HCDS was an after-thought, a cover-up." Adds a Bharat Sanchar Nigam (BSNL) counsel: "The concept of HCDS never came up during initial dialogue between Reliance, and dot and BSNL."

Communications Minister Maran: Threatening action

The verdict comes at a time when the Reliance Group is embroiled in an internal ownership feud, with Infocomm hit by charges of undesirable collusion with erstwhile Union Minister Pramod Mahajan, in whose regime the telco flagged off operations. Meantime, estranged younger brother Anil Ambani, who reportedly earlier considered the telecom venture a drag on flagship Reliance Industries Ltd. (RIL), is now said to be angling for ownership of the Rs 3,728-crore (for the nine months ended December 2004) operations in a bid to ensure an equitable split of the group's assets. And while he's at that, Anil has also been championing the cause of RIL shareholders who appear to have effectively funded the telecom venture at a cost apparently much higher than that borne by a number of Mukesh Ambani group companies.

Mukesh clearly has his hands full, as pressure is now building on the government to take the issue to its logical conclusion. The threat of licence cancellation-first made by Union Communications Minister Dayanidhi Maran-looms large, considering the gravity of the violations. CPM MP Nilotpal Basu says: "Our concern is with the subversion of the institutions; big corporates make super profits at the cost of potential rural consumers. Reliance's complicity has been established, and the licence violation calls for a higher penalty. Taking into consideration the way the TRAI (Telecom Regulatory Authority of India) shirked its responsibility from taking up the case calls for a complete investigation into the criminal collusion between TRAI and private operators."

Whether a potential cancellation will involve just one licence or all of them is unclear, but dot sources say such a move will only be the last resort. "For the moment, the objective is to secure penalty payment and better corporate behaviour from Reliance Infocomm," the source adds.

The index of TDSAT disapproval is evident not only in the additional fine of Rs 25,000-quite high by Indian judicial precedence-but also by the usage of harsh language, which courts and tribunals usually avoid. The 85-page judgement is filled with such phrases as criminal act, fraud, unprincipled, unscrupulous, and security threat, all highlighting the gravity of the case.

To borrow from the last pages of the 85-page TDSAT verdict: "... the action of the petitioner put the security of the nation in grave danger. With reference to Caller Line Identification (CLI), the modus operandi adopted by the petitioner (Reliance Infocomm) was a criminal act. It was a ruse to conceal true nature of the calls. Petitioner generated fake numbers which did not belong to any subscriber.... Though it started giving correct CLI numbers from September 16, 2004, but only when dot asked for its explanation. It is not one or two dummy numbers. Rather these run into hundreds and thousands. The method Reliance Infocomm Ltd. employed to camouflage an international call was certainly unprincipled and if we may say so unscrupulous. This was in total breach of licence conditions..."

"We have found cases of petty, small-time operators indulging in such practices (re-routing of international calls as local ones), but never a licensed operator,'' says a BSNL source. "The disclosures are disturbing, and some court can take a serious note of the TDSAT verdict."

Such crises aren't exactly new for the Ambanis, who have braved sundry regulatory and teething problems before. At the time of writing, Reliance Infocomm said it had paid the Rs 150 crore to dot, not, however, before adding: "The payment has been made without accepting the findings of TDSAT. We will explore all avenues to establish that the service provided has been in accordance with the licence conditions. There has been no impropriety on our part." Reacting to Reliance Infocomm's carefully worded release, a dot counsel says: "They have to show it as paid under protest. They can be expected to file an appeal in the Supreme Court over the next 90 days-this is their compulsion, for if the TDSAT verdict goes unchallenged, it might affect their proceedings in the Delhi High Court; and this could also encourage other litigations, corporate as well as individual."

By the time its next case comes up for hearing, this magazine would be on the stands. But Infocomm's woes won't be over in a hurry. Over and above the penalty cost, Reliance Infocomm is required to pay Rs 263 crore to bsnl and Rs 341 crore to Mahanagar Telephone Nigam Ltd. (MTNL) for international call-tampering; while it has paid Rs 182.7 crore to BSNL and Rs 111 crore to MTNL under the Supreme Court order, the two cases are still pending in the Delhi High Court. It's going to be a long, hot, sticky summer for Mukesh Ambani.

-By Kumarkaushalam