Breaking the impasse on strategic disinvestment and privatisation
The way to push the process is for the political leadership to sign off on each transaction
The Cabinet Committee on Economic Affairs (CCEA) has given an in-principle approval for strategic disinvestment of Bharat Petroleum Corporation Limited (BPCL), Shipping Corporation of India (SCI), and Container Corporation of India (CCI), and for sale of two power sector enterprises to National Thermal Power Corporation.
In early 2016, the government announced that it would start strategic disinvestment of central public sector enterprises (CPSES). The CCEA had approved 28 CPSES for this purpose. Five transactions were completed, but all these were sales of CPSES to other CPSES.
As Minister Anurag Thakur said in the Parliament on November 18th, strategic disinvestment is about government not continuing in business in a sector. While the outcome of the recent decision on BPCL, SCI and CCI is still to be seen, the sale of stakes of one to another CPSE cannot be called real strategic disinvestment, for it is essentially taking money from one pocket and putting it in another. Why has the government not managed even one real strategic disinvestment almost four years after the announcement?
While in the private sector, sale of firms is a routine matter, sale of a firm by government is complicated. The persons taking the decision are acting on behalf of the government, and the government is supposed to work in public interest. It is not just a matter of selling firm at any price. It is a commercial transaction in a politically contested situation.
There is opposition on grounds of interest of stakeholders (for example, employees of CPSE) or ideology (for example, those against privatisation). Fairness of a transaction can also be challenged. A CPSE is sold at a price discovered through a chosen procedure on a given day. Norms shift over time, and a procedure or timing considered adequate today might be retrospectively held to be unfair. Further, since, after privatisation, the valuation of CPSE tends to increase over time, this can attract accusations of having created windfall profits for the purchaser, even though the gains in valuation may have come from the very act of privatisation. CPSES also usually enjoy some special privileges (land grants, licenses), which are difficult to disentangle before the sale. So, even if an open and competitive process is run, a challenge in courts cannot be avoided.
The last time the Union government did real strategic disinvestment was in 2003-04. The Atal Bihari Vajpayee government had shown political will and built capacity for privatisation. It created a ministerial position, with Arun Shourie as the minister. It constituted a Cabinet Committee on Disinvestment. An independent Disinvestment Commission did analysis on CPSES. The government put together a team in the department of disinvestment, and created systems to implement the decisions. Between 1999-2000 and 2003-04, the department privatised several CPSES. But this capacity was lost when the United Progressive Alliance (UPA) government decided to discontinue the privatisation programme.
For years, Shourie and the disinvestment team faced accusations and litigation relating to the privatisation decisions. It is possible that they may have made some mistakes, but even a decision taken in good faith and with diligence can be challenged. So, it is not just about building administrative capacity for implementing the decision, but also about finding ways to assure bureaucrats that they will be protected if they implement the procedures properly.
This is difficult even at the best of times. But these are not the best of times. The space for bureaucratic decision-making has shrunk considerably since 2011-12. Bureaucrats cannot be sure when they would be hounded for which decision and on what grounds. It has become increasingly common to scapegoat the bureaucrats. This is not to say that the bureaucrats are simply victims. However, it is a problem for governance if distinction is not being made between corruption and poor judgment. The innocent might be exonerated after due process, but this is little comfort, given what due process means in India.
Since power is dispersed across institutions of governance, no one actor can just create an environment conducive for risky decisions. There are various institutions, particularly the judiciary, whose future stance on current decisions cannot be determined. It is much easier to destroy a sense of order than to restore it. This is a political problem, which is not amenable to direct, analytical solutions.
For now, it seems the only way to get the privatisation programme started again is for the political leadership to personally sign off on all major aspects of each transaction, including the method of sale and valuation. Any bureaucrat would be wary of taking a decision in his own name.
Theoretically, BPCL, SCI, and CCI should be easy to privatise, because they are profitable. But it will be interesting to see how the decision is implemented, if more CPSES will be privatised, and if this will contribute to creating a sense that the present government is capable of being pragmatic. After all, the objective of this announcement is not just to bridge the fiscal gap, but to revive the economy.