Sunday, June 14, 2009


Not a totally easy path ahead for divestment, aim for strategic sales

When the Congress Government came back to power with an enhanced mandate and higher numbers (and consequently, a less dependence on allies to make up its numbers), the markets welcomed the step, with people talking about a re-start of the earlier stalled divestment process. In fact, with the amount of money that the Government has committed towards its ambitious social welfare programs, it needs to arrange for large sums of money to fund these programs. The disinvestment program seems a good way to arrange money for these programs. However, not everything seems to be going the same way for the Congress; even though the allies are lower in number, the opposition from them is still prevalent.
Right now, the 2 main allies of the Congress, the Trinamool Congress of Mamta Banerjee, and the DMK of Karunanidhi seem to have problems with the policy of disinvestment. The DMK is opposed to the policy of disinvestment for those Public Sector Units that are located in Tamil Nadu (these PSU's are a source of public patronage, and the DMK needs to ensure that continuous patronage opportunities remain). The poltician belonging to DMK and Karunanidhi's daughter, Kanimozhi, made a statement against the process of disinvestment as well (link to article):

In the Rajya Sabha, the Congress-led government's new agenda for disinvestment faced opposition from its key ally DMK. The DMK's opposition to the government's disinvestment policy echoed in the Upper House with party MP Kanimozhi arguing that generating revenue by divesting the PSUs would not help. "I welcome that the UPA government has laid a lot of emphasis on welfare schemes and on social sector spending. But we also have to keep away from the temptation of generating revenue by disinvesting our PSUs," Kanimozhi said
Another important ally, Trinamool Congress, has already made it clear that it would not allow rampant disinvestment of the PSUs. Though the party has not yet made its stand clear in the House, party chief Mamata Banerjee opposed some of the `radical' ideas when the draft of the President's address was discussed among the cabinet ministers, Trinamool sources said.

Principally, the Government has no role to play in many of the sectors of industry ? After all, why is the Government in the business of running airlines and having to spend huge amounts from taxpayer's money to prop up Air India, or be in the business of telecom, or in financial industry, or many other similar areas. These are then totally dependent on the whims and fancies of the Minister (even for a critical area such as Road building where the previous Minister had a big hand in the slow down of road expansion).
Further, when the Government does want to disinvest, for sectors of industry where the Government should have a zero role, it should get optimum return. This is not possible through the normal case where the Government disinvests its shares while maintaining a 51% stake in some of the PSU's. For PSU's where a Government stake is not critical, it is better to follow the earlier Government (NDA) policy of strategic sale whereby the Government sells its controlling stake to bidders. This results in a much higher return, and is the optimum way to get returns from the disinvestment process.

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