HVK Archives: People's Capitalism
People's Capitalism - The Times of India
Editorial
()
9 August 1996
Title : People's Capitalism
Author : Editorial
Publication : The Times of India
Date : August 9, 1996
After five years of unplanned and ill-planned divestment
of government-owned stock in central public-sector
undertakings, with attendant accusations of corruption
and swindling of public assets, the Union government has
finally put in place an institutional mechanism that can
facilitate planned, and hopefully transparent,
privatisation. The so-called Disinvestment
Commission,which should ideally have been called the
Privatisation Commission, with former SEBI chairman G.V.
Ramakrishna heading it, has been asked to draw up a long-
term programme of disinvestment, with the intended aim of
widening `public' ownership of the public sector. The
government has finally accepted the idea, often canvassed
in these columns, that it is better to go in for outright
privatisation of PSUs rather than rest content with
piecemeal disinvestment. Another vital element of the
new strategy which deserves support is the intention to
invest the funds raised through privatisation partly in
strengthening some PSUs which are worth reinvesting in,
and partly in social sector programmes. Thus far,
including in the current financial year, disinvestment
has been viewed almost entirely as a deficit management
measure. Thanks to the International Monetary Fund
liberally widening the definition of the concept of
'fiscal deficit' to include proceeds from disinvestment,
the former finance minister, Mr Manmohan Singh, was able
to meet IMF targets through this route. Using
disinvestment proceeds to reduce the fiscal or revenue
deficit was bad economics and the Union finance ministry
must stop this practice forthwith.
The Union government has now let it be known that the
Disinvestment Commission will seek inspiration from the
British experience in privatisation. There were two
dimensions to the Thatcher model, first the desire to
widen the class of investors, replacing 'state socialism'
with 'people's capitalism'; and, second, the desire to
maximise earnings for the government from the sale of
properly priced and marketed shares. The British
experience, especially in privatising British Telecom,
has much to commend it, even as there are many lessons to
be learnt in avoiding some of the pitfalls. The key
element of success in Thatcher's privatisation was the
disposal of public assets, not at inordinately low
prices, but, in fact, at reasonably good market prices.
Central to this strategy was the participation of the PSU
executives concerned in the marketing of their own
company. Many public-sector companies are true blue
corporates which deserve a good price. The recent
instance of the sale of ITDC shares at scandalously low
prices to a rival hotel company is the kind of scam that
should be avoided. The Disinvestment Commission as
currently constituted gives cause for hope on this score,
since the integrity of its members cannot be questioned.
While the idea of utilising a part of the proceeds from
disinvestment on social sector programmes is all right,
the actual programmes to be supported should be clearly
spelt out and identified so that the funds are not wasted
in worthless projects or used up to bridge the revenue
deficit. Considering the cost of such funds it would be
advisable to, in fact, use them productively by investing
them in infrastructure, including human capital
formation.
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