ARUN SHOURIE, Minister of Disinvestment, GoI: So far, so good. Now he must deal with the pariahs of public sector

Half hour into the interview at his office in Yojana Bhawan, Delhi, Union Disinvestment Minister Arun Shourie announces that the session is over. He has half-a-dozen merchant bankers from JP Morgan Chase waiting for him and that meeting, he explains to the writers, will last for some time.

That's only understandable. Ever since the 59-year-old took over the much-maligned portfolio in July 2001, the government's disinvestment programme has been turbocharged. Despite resistance from the Left parties (the usual suspects), members of the ruling National Democratic Alliance, trade unions, and even some corporate houses, Shourie has pushed through the sale of 12 state-owned enterprises, raking in Rs 6,648 crore (excluding engineering company Jessop, for which the final decision is yet to be taken) for the impoverished government coffers.

Indeed, even a year ago, things were far off Shourie's way. The much-delayed sale of Bharat Aluminium Corporation (Balco) sparked off not only allegations of pay-off but also a host of court cases. It wasn't until the Supreme Court clarified that it wouldn't intervene in disinvestment unless something unconstitutional had been done, did the controversy die down. Today, Shourie and his deputy Pradeep Baijal-Secretary in the Department of Disinvestment-thrust the apex court judgement in the face of detractors.

Now that the disinvestment process has gained a new momentum, Shourie is loath to slow it down. Fortunately for him, there are at least four more PSUs that will be hotly contested for. These include Bharat Petroleum (BPCL), Hindustan Petroleum (HPCL), Shipping Corporation of India, and National Aluminium. Although a decision has not been taken on Bharat Sanchar Nigam Ltd (BSNL) and Mahanagar Telephone Nigam Ltd (MTNL), it's a matter of time before they are put on the block too. And as far as Maruti Udyog is concerned, it is only a question of when and how much, rather than who.

But once Shourie has exhausted that list, he'll be hard-pressed to find buyers for what remains. These literally are leftovers and, worse, loss-making and saddled with a workforce that can't be wished away. In fact, in some cases, the bidder would be better off setting up a greenfield plant with modern technology than clean up such an Augean stable. Says Kaushik Dutta, Partner, PricewaterhouseCoopers: ''The tough part of the sell-off begins now.''

But ask Shourie whether he thinks the going will be difficult henceforth, and he bristles with indignation and contempt. ''I don't know. Journalists should decide that,'' tongue-lashes the man, who not too long ago was himself a journalist with a sharp pen. ''When we went in for disinvestment in loss-making companies, the media said that we should go for big-ticket disinvestment. Now that we have gone in for profit-making ones, you ask us if selling loss-making ones will be difficult.''

Flogging Dead Horses

Criticising journalists does not make Shourie's job any easier, though. Six psus have returned like bad pennies every time they were offered for sale. These include Rerolle Burn, Bharat Brakes and Valves, Scooters India, Bharat Pumps and Compressors, Praga Tools, and Bharat Leather Corporation. Even the new list of 16 includes some stragglers like Tungabhadra Steel, Sponge Iron India, and National Fertilizers, which may not get investor adrenalin pumping. ''It's a lot tougher selling loss-making companies,'' points out Naina Lal Kidwai, Vice Chairman, JM Morgan Stanley

Messrs Shourie and Baijal scoff at such pronouncements. They point to the sale of loss-making Paradeep Phosphates and nine ITDC Hotel properties. All told, the deals fetched the government Rs 180.61 crore. ''Whether a company is loss-making or profit-making is not an issue with the government,'' Shourie declares. The point: he will do anything that's appropriate to a particular situation.

In the case of sick PSUs, that could mean liquidation. But that's easier said than done. As things stand, liquidation of state enterprises is not allowed. The only way in which a liquidation in effect can be achieved is by sending loss-making companies to the Board for Financial and Industrial Reconstruction (BIFR), which offers protection from creditors and the right to not pay wages. Once the BIFR recommends that the company cannot be restructured, it can be sold. But this process takes between two and three years. Obviously, Shourie would hate to wait that long. Besides, the government is paying a yearly wage bill of Rs 600 crore in PSUs that are shuttered.

Another option is to amend the Land Use Act, which stands in the way of PSU land being sold quickly. The existing procedure demands consent of the President of India and a string of babus. Therefore, parties that would otherwise be interested in the real estate of a psu like the National Textile Corporation-in Mumbai it has land worth Rs 2,400 crore-are fighting shy of making bids. Shourie admits that ''everyone'' is talking about changes in the Land Use Act. ''But I don't see it happening tomorrow,'' he says point blank.

No Global Premium

What's been missing on the disinvestment front is global interest. Sure, the Tatas did bring in Singapore Airlines for their abortive bid for Air India and Indian Airlines, and Shell did make a pitch for IBP. But none of the global majors like British Petroleum and Qualcomm that were scouting for buys in oil and telecom is around any more. But why are global bids so important? ''If there is no global appetite for our best companies,'' explains Dutta of PricewaterhouseCoopers, ''it means that the values we can expect from these PSUs are not benchmarked against the best in the world.''

Shourie feels there are two reasons behind the poor global interest. One, the ongoing recession in most parts of the world and, two, the fact that India is only a marginal destination as far as foreign investment is concerned. Besides, he argues, ''if foreign investors were to buy up large Indian enterprises, there might be a huge recoil from the Indian public.''

There's a flip-side to the argument. Soumitra Choudhary, Chief Economist at the credit rating agency ICRA, feels that the collapse of Tata-Singapore Airlines' bid for Indian Airlines and Air India sent out wrong signals to the world. ''It implied that the Indian political system is open to arm-twisting,'' he points out.

Despite Shourie's fear of public recoil and Choudhary's theory of distrust, global investors possibly haven't given up on the PSUs. There are at least four companies where global bidders will participate either directly or indirectly. These are BPCL, HPCL, MTNL, and BSNL, which are simply too attractive to be spurned. While no decision has been taken on disinvestment in the TELCOs, BPCL and HPCL should go under the hammer by July 2002. Estimates are that the two could fetch anywhere between Rs 1,000 crore and Rs 1,500 crore each for a 25 per cent stake.

What Shourie has going for him is the widespread belief that disinvestment is now unstoppable. ''The fear of the unknown that was putting a roadblock to the disinvestment process is now gone,'' claims Baijal. Reeling out statistics to prove his point, Baijal says that in the last 10 years the government has given away Rs 80,000 crore to keep PSUs alive. In 1999-2000 alone, the government handed out Rs 20,000 crore to the sector. ''Everyone realises that this cannot go on. Therefore, the resistance has gone,'' Baijal notes.

That's also getting investors interested. For example, the ministry had recently invited bids for nine ITDC hotels outside Delhi and has already received 205 so far. And as Baijal points out, these were not empty bids; each bidder had to make a non-refundable deposit of Rs 40,000.

Daunting as Shourie's task ahead is, it does not lack supporters. But the window of opportunity is small. Next year, with general elections looming large (in 2004 India goes to poll again), the minister's hand could be constrained by people from within and outside his own government. And in a year of elections, good economics does not necessarily mean good politics.