The mess of coalition politics is once again very evident. The DMK, a constituent of the ruling UPA (United Progressive Alliance) has threatened to pull out of the coalition if the goverment goes ahead with its plan for privatizing Nevyeli Lignite. So the DMK's got the government by its short and curlies, and the Prime Minister has announced the decision to put all disinvestments on hold!
Which may not be such a bad thing after all. Disinvestment and privatization in India has usually been ad-hoc, and often without rational economic justification. That government should get out of business is a great idea, but the way and pace in which this is done is pretty crucial. When workers get laid off, people lose livelihoods and social upheavals invariably occur. The controversies over profitable public sector companies having been sold for basement-bargain prices only fuels suspicion of who's actually benefitting from the sales.
On the other hand, the opposition to privatization is also largely based on votebank politics rather than rational economic analyses. The DMK arose to the "evils" of privatization only when it threatened to strike home. The Left is a weak shadow of itself, and its opposition is sometimes ludicrously lame - recollect how the protests against airport privatization fizzled out.
In all this, the media once again portrays the interests of big business without trying to really explore the complex mass of underlying issues. The entire disinvestment issue is presented as a big business vs. worker rights issue. While that is indeed one aspect of the issue, there's usually a lot more, and the press never seems to get around to discussing threadbare all the issues involved. Now, "experts" are saying that this decision will negatively affect stock market sentiment. So why the hell should anyone care? We're guaranteed to be in a bubble economic phase whenever the stock market indices begin to influence economic policy decisions. In any case, the market's been acting inebriatedly lunatic since the past couple of months.
My prediction: when the right "incentives" have been shown to the decision makers at DMK, Nevyeli Lignite will be sold off. Probably before the year is over. But then, I am a conspiracy theorist in any case!
About Me
- Kanwal K Mookhey
- Mumbai, India
- I run an IT Security consulting firm based out of India. We started off from scratch in 2001 when I was 21, and have offices in Mumbai, Bahrain, and UAE. The idea behind the blog is to share the stories of how we run the business, the deals we make, the deals that break, the heartburn, and the sheer joy.
Friday, July 07, 2006
Disinvestment stopped
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8 comments:
intrepi ,
are u too NDA pro that even after its moving out of the power for more than 2 years now u said NDA as the ruling party, isnt it UPA.
but independent of that, the post was good.
Hey ankur, thanks for pointing it out! Put it down to multi-tasking foul-up...:)
Thats true...no justification in selling off profit making PSUs just for the sake of making money.How on earth can govt sell off companies tht were built with public money to private ppl ..and tht too when no justfication is ard..
Anonymous: actually there is very little justification for the government to actually be in business in the first place. For instance, why is the government interested in lignite mining (with Nevyeli)? Government should definitely get out of business. My point was that there should be a method to the madness and the disinvestment process should be far more transparent, correctly paced, and economically justified than it is right now. Even if profit-making PSU's have to be sold of, let's do that. But let's at least get the right price for it. And let's make sure there are enough clauses in the deal to see that the weakest get equal consideration in the entire affair. And let's also make sure that there are the right societal institutions to handle the effects of such sales.
What is the correct pace? Social upheaval is going to happen any case. In fact, the quicker the better. It kills me everytime I see government trying to do business!!!! That's like Harsha Bhogle commenting on soccer. NLC and all other PSUs are getting the market price. There is no reason to delay privatization. Absolutely none.
Disinvestment is a very complex, and strategically very significant process. In any such process, common sense would dictate the following:
1. The objectives of the process should be clearly laid out. What is it that we could like to achieve at the end of it all.
2. What should our overall strategy be in order to implement the process in a way wherein we achieve those objectives. Standing on the pavement corner and selling all your assets to the highest bidder who walks in that day could be one strategy. Timing your asset sales in a way where you maximize your earnings could be another way. Sequencing them such that the impact on your employees, shareholders and other stakeholders is on the whole positive is another strategy.
3. Putting the right controls in place, so that disinvestment is not a means for members on the disinvestment committee and other assorted politicians and bureaucrats to fatten their pockets is critical. Globally, disinvestment has been a heavily abused process and has resulted in very many people becoming rich. You have Russia as a striking example of all that can go wrong with privatization. Which is simply a cover for asset-stripping and the subsequent rise and rise of the mafia.
I remember in 1991 when the whole process kickstarted, Manmohan Singh and team had come out with a strategy white paper on disinvestment. Sadly, that remained only on paper. Successive governments never bothered to have a coherent strategy to the entire process. Absolutely no method to the madness. And even blunders such as the sale of the Centaur hotel have not forced the government (a different one this time) to relook at how it can be done better.
It was never going to be an easy process. But, shooting in the dark isn't helping anyone. Why, for instance, has Nevyeli Lignite suddenly been chosen to be privatized. Doesn't it maybe just hint that there is more to this than meets the eye. That maybe there are mining lobbies at work that influenced this particular decision, and almost got their way through?
Wow nice article
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