India's reform process falls prey to political squabbling

Tuesday, 17 September 2002, 19:30 IST
Printer Print Email Email
NEW DELHI: India's on-again-off-again privatization process, which forms the centerpiece of the government's ambitious reforms drive, looks set to be stalled on rising political squabbling within the ruling coalition. After the deferment of the proposal to sell two state-run oil giants this month, the government is now facing increased opposition from its allies on moves to privatize other major units, triggering a massive sell-off in the stock markets. Analysts say differences within the government over the sale of state-run companies comes as a major setback for the ambitious economic reforms process. Many say the failure to implement the privatization program reflects Prime Minister Atal Bihari Vajpayee's failure to force the multi-party National Democratic Alliance in power to push through change. "The privatization of public sector units was the only reform process that was gaining momentum in the last one year and had raised expectations of investors," said economist D.H. Panandiker. "But now the process has completely been taken over by politics. It is almost certain that the program will be very much delayed and I wont be surprised if it is completely stopped," Panandiker said. The latest blow to the divestment process comes from Minister for Chemicals and Fertilizers Sukhdev Singh Dhindsa, who has raised objections to the proposed privatization of the National Fertilizer Ltd. Dhindsa has asked the prime minister to defer the proposal to divest the government's stake in National Fertilizer till a policy on the sale of profit-making public sector companies is evolved. Meanwhile, trade unions in Orissa have called a strike across the state on September 29 against a central bid to privatize the government-run 32-billion National Aluminium Company Ltd. (NALCO) operating in this state. A trade union leader claimed that all major political parties in the state, except for Prime Minister Vajpayee's Bharatiya Janata Party (BJP), had supported the strike call. Orissa Chief Minister Navin Patnaik has also sought a meeting of India's ruling alliance to discuss and possibly review the NALCO privatization plan. Patnaik's Biju Janata Dal is a member of the coalition. The opposition to proposals to privatize the National Fertilizer and NALCO comes close on the heels of the government deferring the sale of Bharat Petroleum Corporation Ltd. (BPCL) and Hindustan Petroleum Corporation Ltd. (HPCL). The government was forced to put-off the divestment of HPCL and BPCL by three months following stiff protests from Oil Minister Ram Naik and Defense Minister George Fernandes among other coalition members. "We have apprehensions and therefore we are asking for a review of the whole disinvestments program," said Shambhu Shrivastava, spokesperson of Fernandes' Samata Party, a key member of the ruling coalition. "All that we are asking that the government must take a pause and review the privatization process. This is not something earthshaking we are demanding." According to Shrivastava, issues like privatization of units through strategic sale route or initial public offering, methods of valuation of companies and the use of proceeds from the program must be reviewed before privatizing other firms. "Let there be a complete review of the process... controversy or review doesn't mean derailing the process." Experts, however, say the demand for a review of the privatization methodology is an excuse for delaying the process ahead of some state assembly elections and the next general elections due in 2004. "People like Fernandes would not like to compromise with their socialist image ahead of the elections. There is lot of politics involved in it... It is not just the minister in-charge of the companies trying to halt the process," said Panandiker. Agrees D.K. Srivastava, a senior economist with the think tank National Institute of Public Finance and Policy: "There are some vested interests within the government that are at work." Analysts say divisions within the government may widen and other coalition allies may also start wavering on supporting the sale of national assets in the months ahead. The latest setback to the country's ambitious privatization drive comes after the government ignored opposition and sold its stake in a telecom giant, an oil firm and the country's largest joint venture carmaker, earlier this year. New Delhi plans to raise 120 billion from sales of shares in state-run firms in the current financial year. It has repeatedly failed to meet targets in the past because of stiff protests from opposition parties and trade unions. There are about 240 state-run firms in India, most of which run at a loss.
Source: IANS