On Friday, 500 employees of the Airport Authority of India (AAI) turned up to protest against the privatisation of airports. Such protests are nothing new, but this one was interesting because it was against a government whose allies had recently rocked the capital market and wiped out tens of thousand crores of stock value with their anti-privatisation rhetoric. The protest was against a government, whose Common Minimum Programme clearly does not use the dreaded “P” word in connection with Public Sector Undertakings (PSUs).
At one level, the airport employees’ protest, led by Shiv Sena MP, Sanjay Nirupam, exposes the hypocrisy of the United Progressive Alliance (UPA) and the gap between the extreme rhetoric of its constituents and its actions. At another level, it adds further fuel to the already controversial debate over whether it is in India’s best interests to privatise PSUs, or divest management control to strategic partners, or instead, strengthen management autonomy and raise funds through sale of shares.
Sanjay Nirupam, who had also protested against the resale of the Centaur Hotel (Mumbai airport) to the Sahara Group within days after it was privatised, clearly believes that the AAI is a profitable enterprise, which will benefit from increased autonomy and can easily raise money through a public issue.
Ironically, Nirumpam’s stand could draw some support from GV Ramakrishna (GVR), who chaired the Disinvestment Commission (DC) that first recommended strategic sales for certain PSUs. The Commission’s recommendations had not created a furore at that time because they followed wide consultations with trade unions and other stakeholders. Those who oppose privatisation would do well to read Two Score and Ten, GVR’s recently released book on his 50 years as a civil servant.
The book encapsulates the key recommendations made in the DC’s many reports; most of these are exactly in line with the UPA government’s claims of reforms with a human face and are worth revisiting.
For instance, there were some broad general recommendations that should have been a starting point for the divestment process, but successive governments have ignored them. The first was to put disinvestment proceeds into a Disinvestment Fund and use it for public welfare and to pay for the Voluntary Retirement Schemes offered by weaker PSUs. The second was to delink the disinvestment process from the budget, so that it is not reduced to a mere fund raising exercise. Both these sensible suggestions ought to find some favour with the Left Parties.
Three other recommendations of the DC have been superficially implemented. The first was to grant more autonomy to PSU managements; second, to delink their salaries from those of civil servants and third, to protect PSU officials from “hasty criminal investigation” through scrutiny of impugned decisions by a pre-investigation board.
Since the sale of oil PSUs and navratna companies causes enormous anger among Left leaders, it is pertinent to note that in 1998, the DC had said that there should be no strategic sale to private parties of blue chip companies and oil companies such as IOC, NTPC, BHEL, HPCL, BPCL or even State Bank of India. Instead, the shares should be kept with a National Shareholding Trust (NST).
When it comes to national interest, most countries around the world have been wary about foreign investment, including the British who started privatisation. The British Petroleum (BP) case, where the Monopolies and Mergers Commission (MMC) asked Kuwait Investment Office to reduce its holding from 18% to 10%, is extremely important in this context. The MMC had said in its ruling that “there is a high degree of probability that situations will arise in which Kuwait’s national and international interest will come sharply into conflict with BP’s and HMG’s (Her Majesty’s Government) interest”. In these situations, Kuwait may seek to use its shareholding to influence BP in ways that may be detrimental to and against the UK’s public interest.
Exactly the same consideration applies in case of India’s public interest in connection with our oil PSUs, especially Indian Oil Corporation and ONGC. But can an aggressive Sanjay Nirupam really extend the argument of national interest to the AAI, especially since his party was happy to be a part of the government that had pushed for the strategic sale of oil PSUs? But he does have a point when he asks why greater autonomy would not make the AAI more efficient and accountable. He also points out that AAI is profitable and has huge real estate assets that will be coveted by any private bidder.
GVR, too, has pointed out that the vast and hugely undervalued real estate assets, generously bestowed by the state governments on central PSUs in the days of Nehruvian socialism, are never adequately reflected in a discounted cash-flow based valuation of companies. This has led to enormous controversy in India, because PSUs are perceived to have been sold for a song.
The solution, according to Mr Ramakrishna, is to prepare a white paper that will spell out the government’s policy and answer key questions on the modality of privatisation or disinvestment for different types of enterprises, including the 102 loss-making PSUs, which together have run up losses to the tune of Rs 45,000 crore in the last five years. After all, while the money raised by selling profitable PSUs goes to the exchequer, the losses are also met through taxpayers’ money. But this has to be adequately explained to the people and politicians.