What an eventful week! On Thursday, the National Democratic Alliance government got three long pending bills cleared by the Lok Sabha and signaled that economic reforms are back on course. Yet on Monday, in a display of amazing arrogance and callousness, the same government allowed the Disinvestment Commission to die without so much as the courtesy of meeting the Commission members or thanking them for the excellent recommendations produced over the last three years.
What does it signal? The government wants no sensible advice and would rather raise money through gimmicky divestment even if it destroys the value of public enterprises, usually as a hasty pre-budget exercise.
The stock market seems to have latched on to the good news alone and is celebrating the resumption of economic reforms. The turnover of the two leading stock exchanges--the National Stock Exchange and the Bombay Stock Exchange--achieved unprecedented daily turnovers as the Lok Sabha cleared the Insurance Regulatory and Development Authority Bill, the amendment to the Securities Contracts Regulation Act for permitting Derivatives Trading, and finally the Foreign Exchange Management Act (FEMA) Bill along with its companion, the Money Laundering Act.
The long overdue clearance to the Insurance Bill is certainly positive. It will first lead to the formation of a rush of insurance companies. Then it will give better options to the consumer. And finally and hopefully, it will force government-owned monopolies to clean up their act and remain competitive.
Foreign insurance companies have been rewarded for their patience. Several of these set up offices in India over two years ago and watched several governments make promises and get booted out without fulfilling them. They now have a foot in the door. They have accepted a minority stake but one can be sure that as soon as they are properly in business they will continue to lobby for a higher stake.
The long pending and much discussed FEMA Bill will make life a lot safer for businessmen who have long been terrorised by the draconian powers of arrest and worse, under the earlier Foreign Exchange Regulation Act.
The demise of the Disinvestment Commission seems to have gone unmourned. Not even the scam-a-day Congress-I and the perpetually protesting Left Front have objected to the shoddy manner in which the Commission was treated. The reason is simple. Every political party or alliance has a vested interest in controlling public sector companies or has played a rule in bungling the disinvestment process. Moreover, nobody wants a powerful body headed by a highly respected and outspoken chairperson going public with its criticism and drawing attention to the mess.
With the Disinvestment Commission out of the way, the government is now free to mothball the nine reports of the Commission, which made recommendations for the divestment of 53 companies. For the record, the government has accepted only 21 out of the 53 cases. Out of the four closures suggested by the Commission only one has been accepted; and of the 32 cases where it prescribes sale to a strategic partner, only nine decisions have been taken.
At the same time the government needs to raise the budgeted Rs 10,000 crore through divestment and it needs the money real-quick. Last year's gimmick of raising money through cross-holding drew so much flak and led to such a steep fall in market capitalisation of oil sector PSUs, that it dare not try it again.
Instead it has a couple of new gimmicks up its sleeve. First is the purchase of the National Hydroelectric Power Supply Corporation (NHPC) by the National Thermal Power Corporation (NTPC) for Rs 4,000 crore which will be transferred to the consolidated fund over two years.
Another is the aim to revive the Special Purpose Vehicle (SPV), suggested by the former Finance Secretary Vijay Kelkar, as soon as the current session of Parliament comes to an end. The SPV is a politically accepted way of destroying the value of PSUs. It will end up with a government-funded SPV buying 49 per cent equity in PSUs, which will allow government (read politicians and bureaucrats) to retain control over them and at the same time extract funds to bridge the fiscal deficit.
With the Commission out of the way, the government can bungle as it pleases and indulge in cosmetic divestment to bridge the fiscal gap without fear of any criticism from G.V.Ramakrishna. Who cares if it leads to a squandering of national wealth or destruction of these once powerful companies?
Nobody understands that PSU divestment is about proper timing of issue, an understanding of the capital market, and above all, the ability to bargain well and extract the best value for shares. It either needs a strong and independent Privatisation Commission, which forces investment bankers to get the best deal for the company or can be best handled by responsible corporate managements. If there is only one thing that is certain, it is that a committee of bureaucrats reporting to another committee of ministers who can never handle disinvestment. However, the government is not worried: it has killed the critic.
Cyber Naidu and populism All right, you folks, all of us admire the way Chandrababu Naidu is transforming Andhra Pradesh. But we do need to put the record straight.
Last week I wrote about Chandrababu Naidu. I said, "Over the last three years, this image of Chandrababu Naidu (as Cyber Naidu and reformist Chief Minister of Andhra Pradesh) has been so well-cemented that nobody even remembers that this was the guy who started out by selling rice at Rs two a kilo and imposing an economically disastrous prohibition on the sale of liquor in the State."
This had several die-hard supporters of Naidu writing in to say that my facts were wrong and that Naidu's father-in-law N.T.Rama Rao imposed prohibition and the economically debilitating populist schemes. Yes. That is true. But don't forget that Naidu also supported the populist promises made by NTR which brought him back to power and kept him chief minister for eight months before Naidu took over the TDP in a nicely managed coup.
Here is an example of his support for the populist schemes of NTR. On November 11, 1995 in an interview to Pushpa Iyengar of The Times of India, Chandrababu Naidu response to Ms.Iyengar's statement that he was not serious about implementing prohibition, was this: "I am doing my best to implement the prohibition policy strictly. NTR did not even bother. In fact he did not bother about most of the promises he made. I strongly support prohibition because I know women suffer at the hands of their alcoholic husbands".
It is only in June 1996 that saner counsel prevailed. I had written in The Times of India on June 10, 1996 that Chandrababu Naidu had admitted to a loss in revenue of Rs 1,700 crore on account of prohibition, Rs 1,300 crore on account of selling rice at Rs two per kilo, and Rs 1,400 crore on granting subsidised power to farmers. All this had bankrupted the state treasury and forced the Chief Minister to change track. It was only at the end of March 1997 that the law was amended to lift prohibition which was introduced through the Andhra Pradesh Prohibition Act in 1995.
Chandrababu Naidu was one of NTR's most trusted lieutenants apart from being his son-in-law. He believed in the populist policies and did his best to implement them. As I said before, it is wonderful that he realised the economic disaster of such policies early enough and changed track dramatically and radically. It is this that makes him one of the most admired politicians and CEOs in the country today
Don't worry, I will keep you posted on the new policies and initiatives of Andhra Pradesh.
Last word: And finally, the latest from the political party on a fast decline - the Congress. They have been crying hoarse about the alleged scam in wheat imports. On Friday, its members alleged a scandal in wheat imports and apparently staged a walk-out from Parliament. Guess what the rest of us did? We yawned and switched channels.