Sitaram Yechury
The process of disinvestment of the public sector is the gigantic fraud committed on the Indian people. Together with the loss suffered due to the bank scam, this amount of money would have ensured that our country need not have gone to the IMF or to any external creditor to take care of our economic problems. The new economic dispensation ushered in by the Rao government has as repeatedly shown in these columns seriously jeopardized economic sovereignty of our country. But importantly it has also meant a unscrupulous and unquestioned loot of public resources by the ruling class.
The public sector had been central to the vision of a self-reliant Indian economy.Its dismantling today, though coming in the guise of offsetting loss, is actually an attempt by the ruling classes to create more investment space domestically and to employ the vast assets that the monopoly houses have accumulated through systematic exploitation of the Indian people since independence. In that sense this process does not signify, again as argued earlier a change in the character of the ruling classes. The same ruling classes who had one time required the public sector to build it the infrastructure neces¬sary for capitalist development are today claiming privatisation as the means to employ the capital at their command.
The country has been fed over the years by the rhetoric that the public sector is a colossal white elephant draining scarce resources. Hence the slogan of privatisation was offered as a method to reje¬nuvate the economy. Of course under the pretense of public welfare.
The process of privatisation or disinvestment of the public sector as advanced by the government was necessary to raise inflation free resources in government activity as well as to regenerate public sector enterprises and their technological upliftment.
The report of the Comptroller and Auditor General of India (No. 14, 1993) placed before the Parliament has systematically exposed the manner in which the Government has virtually sold out 30 public sector enterprises and offered crores of rupees to the private sector. This coupled with the continuous reduction in the corporate tax rates reveals the true class nature of the government’s policies.
Nailing down the lie that the public sector were loss making institutions, the CAG report shows that as of 31 March, 1991 there were 246 PSE’s whose total investment amounted to Rs. 113233.68 crore. And all of them together in 1990-91 earned a profit of Rs. 2367.74 crore. This bares credibly that the fact oft concealed of over 2 lakh private sector enterprises which have been closed down or “declared sick”. Nevertheless in an urge to raise resources to reduce the fiscal deficit as demanded by the IMF the government decided in the Union Budget for 1991-92 to disinvest certain public sector undertakings and raise resources.
The Finance Minister’s budget speech in 1991 and the industrial policy statement 1991 outline the process through which this was to be done.
The Department of Public Enterprises (DPE) which was entrusted with the task of working out the mechanics of this process recommended on 1st April 1990 that only 41 PSE’s of the 244 should be disinvested. It further laid down conditions by which certain PSE’s were excluded from this process. In particular it mentioned that those in power generation and transmission, oil, defence should be excluded apart from those in which the government share was below 60 per cent.
Despite these recommendations, these stipulations were violated and important PSE’s were sold virtually for a song (See Box 1).
The government had appointed a committee under the Chairmanship of the Secretary, DPE to work out the modus operandi. On its recommenda¬tions, the government had taken various positions including that no PSE would be disinvested beyond 20 percent and in no case will the government share allowed to fall below 51 per cent. Apart from this the shares were to be sold only to public financial institutions. This however was violated with impunity and crores of rupees were made overnight by various firms (for eg see box 2).
The disinvestment took place in two phases in December 1991 and February 1992. PSEs were bundled together, meaning that profitable ones were clubbed with non-profitable ones and such bundles of shares were offered for sale. The CAG report points out that the choice of such bundles was more than arbitrary. And the manner in which these bundles were offered for sale indicates that there was a absolute lack of competition in the process. For instance in the first round 72.61 per cent of the bundles had only one bidder, only 4.5 per cent had three or more bids. For the second round the situation improved slightly but nevertheless only 35 percent of the cases had three bids or more while 25 per cent one bid.
Apart from such unpreparedness of the market, deliberately done by the government, what is amazing according to the CAG report is that the government accepted bids substantially lower, by a whopping 64 per cent, than the original reserved price fixed by the government itself. This enabled purchasers to make whopping profits at the cost of the national exchequer.
The CAG report further points out that no reply has ever been given by the government to clarify why the offer of lowering of re¬serve prices to the extent of 64 percent was not brought to the notice of the government by the DPE or on what basis was such a revision done. It is clear that few people had appropriated the rights to sell the public sector at one-third of the price than fixed by the govern¬ment itself.
The CAG estimates that the gains made by the purchasing institu¬tions ranged between 126.62 per cent to 615.53 per cent.
What is even more irregular has been the manner in which the government allowed the public financial institutions to offload these shares, in complete violation of the norms decided by it actually. The CAG report states that the permission to allow these institutions to sell the shares was contrary to the decisions taken by the government and the terms and conditions prescribed for the sale of shares as well as the instructions issued by he SEBI to all stock exchanges in April 1992.
The CAG report this lays bare the conspiracy of how the process of disinvestment of the PSEs was deliberately “unprepared”, of how the prices which were already low were further reduced by a whopping 64 per cent and of how these shares were allowed to be sold to general public in complete violation of the norms.
There can be no greater indictment of the government and its actual intentions.
Concluding its report by stating that the disinvestment had not achieved the stated objectives of the government and its only effort was to contain the fiscal deficit inadvertently the CAG has struck the nail on its head. As this precisely was the intention of the govern¬ment. This had to be done not only to satisfy the IMF but also the domestic corporate sector. The CAG report says : “The Budget Esti¬mates for 1991-92 provided capital receipt of Rs 38174 crores includ¬ing Rs 2500 crores to be realised from disinvestment of PSE shares and capital expenditure at Rs. 32039 crores. The estimated surplus on the capital account was, therefore, Rs. 6135 crores. As against this the estimated deficit on the revenue account was Rs 13854 crores. Instead of containing the revenue expenditure and utilising the capital re¬ceipts for enhancing availability of resource of PSEs or for any other productive purposes, Rs. 3038 crores realised from the sale of PSEs shares during 1991-92 was in effect intended to reduce the revenue deficit of the budget. Thus, capital assets were disposed of to meet partially revenue expenditure and the levels of revenue expenditure not having been reduced, the objective of raising non inflationary resources by objective of raising non inflationary resources by the means of sale of shares of PSEs for enhancing the availability of resources of PSEs was not realised.”
This process of disinvestment of the PSEs is in fact the biggest loot committed against the Indian people.. While the CAG was empowered to audit and expose the loss to the exchequer on the basis of the price fixed by the government itself, it will be seen that these prices were anywhere between 100 to 300 per cent less than the pre¬vailing market price of these shares then. While the CAG calculates the loss to the tune of Rs 3442 crore on the basis of government’s reserved prices the loss calculated on the basis of the market prices can be anywhere in the range of Rs. 12 crore. It is nearly double of what was pledged to India by the Aid Consortium in Paris, nearly a double of what the country is seeking from the IMF in the Extended Fund Facility scheme with accompanying stringent conditionalities, or ten times the IMF loan for the current year. The people of India cannot allow the perpetrators of such a huge fraud to go scot free.
The CAG has in face revealed that of the 15 member committee that was nominated to supervise this process only four of them actually appended their signatures to the various decisions that were taken. These four include the Secretary in the finance ministry Mr. M.S. Ahluwalia, since Rajiv Gandhi’s days has been known to be the IMF/World Bank plant in the ministry.
The following table reveals the actual loss to the country in comparison with the current market prices of ten of the 30 public sector enterprises. The CAG report makes a special case study of the SAIL. It was estimated that the exchequer lost Rs 3700 crore on this PSE alone. The reserve price recommended by a private consultant was Rs 35 while the reserve price fixed by the government was Rs. 10, the actual rate of realisation was Rs 13.24. Two months after the disin-vestment the share was listed in the Delhi Stock Exchange at Rs. 200. 1990.75 lakhs of shares of the SAIL were sold at this rate. It is obvious how much was the loss of the Indian people and the gain of those who continue to loot the country.
What is more amazing is the report of the Committee set up by the government in the wake of this exposure for identifying the benefici¬aries and initiating proceedings for punishing them. The Rangarajan Committee instead of expressing indignation at this colossal fraud and suggesting corrective mechanisms has virtually white-washed this entire process. The committee has not only justified what had happened but has upheld the pernicious logic of “selling of assets to pay our debts”. This is precisely the debt trap into which many Latin American country under the dictates of the IMF has fallen. National assets are liquidated and then transferred into private hands eventually to be controlled by multinational capital (an accompanying article in this issue deals with the report in detail).
It is now clear that the government is hell-bent upon pursuing the course of selling of our national assets to finance its prolificy and transfer crores of rupees to the corporate sector. The government’s evaluation note discussed in these columns last week lays bare the intention to proceed with the process of selling our country and thus heaping further miseries on the Indian people.
The Narasimha Rao government and the Finance Minister, Manmohan Singh have to take the direct responsibility for such a fraud per¬petrated on the Indian people. If for no other reason, and there are many, on this account alone this government cannot be allowed to continue to remain in office and sell the country and its assets for a song.