LALU MAGIC for Valentine Day Special
Troubled Galaxy Destroyed Dreams: Chapter 16I
Times of India - 41 minutes ago
BHUBANESWAR: Within hours of railway minister Lalu Prasad gloating over his safety record during his budget speech in Parliament, one of the country’s flagship expresses derailed from its tracks on Friday, leaving at least 10 passengers dead and about …
3 dead, 50 injured as Coromandel Express derails in Orissa Hindustan Times
Breaking News: Train derails in Orissa, 3 killed, 70 hurt IBNLive.com
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The lighter side of Lalu
Rediff, India - 2 hours ago Just like every other year Lalu was at his humourous best while presenting the interim Railway Budget in the Lok Sabha on Friday, with a fair sprinkling of … Rail budget eyes polls, say BJP, Samajwadi Party (Lead) SINDH TODAY all 468 news articles » |
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Poll panel row, recession blues to occupy last session of Lok Sabha
Hindu, India - 10 Feb 2009 The interim railway budget and vote on account on the general budget will also be passed. Some fireworks are also likely with the ruling Congress-led United … |
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In India for almost four decades the country was pursuing a path of development in which public sector was expected to be the engine of growth. However, the public sector had overgrown itself and their shortcomings started manifesting in the shape of low capacity utilization and low efficiency due to over manning and poor work ethics, over capitalisation due to substantial time and cost overruns, inability to innovate, take quick and timely decisions, large interference in decision making process etc.
The Government started to deregulate the areas of its operation and subsequently, the disinvestment in Public Sector Enterprises was announced. The process of deregulation was aimed at enlarging competition and allowing new firms to enter the markets. The market was thus opened up to domestic entrepreneurs / industrialists and norms for entry of foreign capital were liberalised.
Prior to 1991, a large number of industries were reserved for the public sector:
4.1.1 Industries reserved for PSUs prior to July 1991
1. Arms and Ammunition and allied items of defence equipment.
2. Atomic energy.
3. Iron and steel.
4. Heavy castings and forgings of iron and steel.
5. Heavy plant and machinery required for iron and steel production, for mining, for machine tool manufacture and such other industries as may be specified by the Central Government.
6. Heavy electrical plant including large hydraulic and steam turbines.
7. Coal and lignite.
8. Minerals oils.
9. Mining of iron ore, manganese ore, chrome ore, gypsum, sulphur, gold and diamond.
10. Mining and processing copper, lead, zinc, tin molybdenum and wolfram.
11. Minerals specified in the Schedule to the Atomic Energy (Control of Production and Use) Order 1953.
12. Aircraft.
13. Air transport.
14. Rail transport.
15. Ship building.
16. Telephones and telephone cables, telegraph and wireless apparatus (excluding radio receiving sets).
17. Generation and distribution of electricity.
Through Notification No. 477(E) dated 25.7.1991, the industries reserved for PSUs were reduced to eight areas from the previous list of seventeen.
4.1.2 Industries reserved for PSUs since July 1991:
1. Arms and Ammunition and allied items of defence equipment, defence aircraft and warship.
2. Atomic Energy.
3. Coal and Lignite.
4. Mineral Oils.
5. Mining of iron ore, manganese ore, chrome ore, gypsum, sulphur, gold and diamond.
6. Mining of copper, lead, zinc, tin, molybdenum and wolfram.
7. Minerals specified in the schedule to Atomic Energy (Control of production and use) Order, 1953.
8. Railway Transport.
This list by December 2002 includes only three areas reserved for PSUs:
1. Atomic Energy.
2. Minerals specified in schedule to atomic Energy (Control of Production and Use) Order, 1953.
3. Railway Transport.
Because of the current revenue expenditure on items such as interest payments, wages and salaries of Government employees and subsidies, the Government is left with hardly any surplus for capital expenditure on social and physical infrastructure. While the Government would like to spend on basic education, primary health and family welfare, large amount of resources are blocked in several non-strategic sectors such as hotels, trading companies, consultancy companies, textile companies, chemical and pharmaceuticals companies, consumer goods companies etc. Not only this – the continued existence of the PSEs is forcing the Government to commit further resources for the sustenance of many non-viable PSEs. The Government continues to expose the taxpayers’ money to risk, which it can readily avoid. To top it all, there is a huge amount of debt overhang, which needs to be serviced and reduced before money is available to invest in infrastructure. All this makes disinvestment of the Government stake in the PSEs absolutely imperative.
4.2 Primary objectives for privatising the PSEs
The primary objectives for privatising the PSEs are, therefore, as follows:
· Releasing large amount of public resources locked up in non-strategic PSEs, for redeployment in areas that are much higher on the social priority, such as, basic health, family welfare, primary education and social and essential infrastructure;
· Stemming further outflow of scarce public resources for sustaining the unviable non-strategic PSEs;
· Reducing the public debt that is threatening to assume unmanageable proportions;
· Transferring the commercial risk, to which the taxpayers’ money locked up in the public sector is exposed, to the private sector wherever the private sector is willing and able to step in – the money that is deployed in the PSEs is really the public money and is exposed to an entirely avoidable and needless risk, in most cases;
· Releasing other tangible and intangible resources, such as, large manpower currently locked up in managing the PSEs, and their time and energy, for redeployment in high priority social sectors that are short of such resources.
4.3 Other benefits expected from privatisation
The other benefits expected to be derived from privatisation are:
· Disinvestment would expose the privatised companies to market discipline, thereby forcing them to become more efficient and survive or cease on their own financial and economic strength. They would be able to respond to the market forces much faster and cater to their business needs in a more professional manner. It would also facilitate in freeing such companies from Government control and introduce corporate governance in the privatised companies.
· Disinvestment should result in wider distribution of wealth through offering of shares of privatised companies to small investors and employees.
· Disinvestment would have a beneficial effect on the capital market; the increase in floating stock would give the market more depth and liquidity, give investors easier exit options, help in establishing more accurate benchmarks for valuation and pricing, and facilitate raising of funds by the privatised companies for their projects or expansion, in future.
· Opening up the public sector to appropriate private investment would increase economic activity and have an overall beneficial effect on the economy, employment and tax revenues in the medium to long term.
· In many areas, e.g., the telecom and civil aviation sector, the end of public sector monopoly and privatisation has brought to consumers greater satisfaction by way of more choices, as well as cheaper and better quality of products and services.
· With the quantitative restrictions removed and tariff levels revised owing to opening of world markets/WTO agreements, domestic industry has to compete with cheaper imported goods. In the bargain, the common man now has access to a whole range of cheap and quality goods. This would require Indian industries to become more competitive and such restructuring would be easier in a privatised environment.
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Last year’s multi-billion dollar deal has got bogged down by issues such as accident liability protection for US companies which have lobbied hard for a slice of India’s lucrative nuclear market.
Former US President George Bush signed the agreement with Prime Minister Manmohan Singh in the face of domestic critics who said it violated the nuclear Non-Proliferation Treaty (NPT).
Plummeting economic growth rates will push millions of more people in the developing countries into poverty and also retard progress in reducing infant mortality!
The Marxist have adopted the WORLD BANK IMF Rhetoric very scientifically!
The TOILET TRY Engaged Media has been COLORED PINK wearing only PINK CHADDI! The Chaddi has become quite a BLACK HOLE to get the citizens into it already deprived of Whatsoever EMPOWERMENT and STUNG with Mind control and Brain washing In IT FDI EXPLOSION XXXXX!
The head of this extreme-right group, Muthalik had threatened to marry off young girls found in the company of boys on Valentine’s Day. Earlier in the day a strong demand was made in the Rajya Sabha to proscribe organisations like the Sri Ram Sene, which have been indulging in moral policing in Karnataka and threatened to disrupt the Valentine’s Day celebrations on Saturday.
The HOUSE Wives do tend now their Home Budget management in the Strategic market, I am afraid of. Meanwhile,The Sri Ram Sene has said its cadres will maintain a constant vigil in New Delhi to check that ‘love birds’ did not indulge in obscene behaviour on Valentine’s Day even as Delhi Police has made elaborate security arrangements to avoid any eventuality on the occasion.
“Banners will be put up at several places in the capital. We have ten mobile teams ready to roam around the city and check that love birds are not involved in obscene ways,” informed Sri Rama Sene general secretary Vinay Kumar. Kumar said India is the land of Lord Krishna and nobody should compete with him in terms of love and relationship. He said his party has also set up a helpline number – 9891616259 – where women can complain about any harassment.
There is a separate campaign to ‘Walk to the nearest pub and buy a drink and raise a toast’, that has found supporters from Toronto to Bangkok to Sydney, with even teetotallers saying they will get a drink on Saturday to show solidarity.
Presenting the vote-on-account for expenses in the first four months of next fiscal, he also announced reduction in the fares of ordinary passenger trains by Rs one for fares costing up to Rs 50 for journey above 10 km.
”Around 0230 hours, motorcycle-borne miscreants threw the bottles filled with kerosene and fled from the scene. The security men at the residence ‘Mannat’ chased the miscreants but in vain,” said Deputy Commissioner of Police (DCP) Niket Kaushik.
The pace of expansion is affected by the global downturn impacting the Indian business, but the balance-sheet of the country’s largest transporter remains robust.
Expenses (operating ratio) would a tad higher at 89.9 per cent because of increased salary bill after implementation of the Sixth Pay Commission in the next financial year as compared to 88 per cent in the current fiscal.
As the rest of the economy is grappling with business setbacks, the Railways would pay a higher dividend of Rs 5304 crore to its owners — the government.
” …Railways have kept the human aspect as the central focus and achieved an extraordinary feat without puttany extra burden on the common man or the employees,” Railway Minister Lalu Prasad said while presenting the interim Budget in Parliament today.
| Friday, February 29, 2008 (23:03:05)
Govt proposes to mop up Rs 10,165 crore from disinvestment
New Delhi: In line with its decision to list more public sector undertakings, government today proposed to mop up Rs 10,165 crore by selling its stake in profit-making public sector enterprises in 2008-09.For the next fiscal, the government has projected receipt of Rs 1,165 crore through divestment of a small portion of equity in companies including NHPC. Besides, Rs 9,000 crore is budgeted as receipts from the SUTI (Specified Undertaking of the Unit Trust of India-I), a subsidiary of UTI, in the next fiscal.The disinvestment proceeds would be transferred to National Investment Fund (NIF), the Receipt Budget tabled by Finance Minister P Chidambaram in Parliament said. “It is the policy of the government to list more CPSEs in order to unlock their true value and improve corporate governance,” Chidambaram said in Parliament.This fiscal, the government had transferred Rs 1,651 crore to NIF, which was set up to use the return from investment of disinvestment proceeds for social sector projects and partly to meet capital needs of profitable PSUs. In 2007-08, the government received Rs 36,125 crore from disinvestment proceeds comprising Rs 34,308.60 crore as one time transfer by RBI for stake in State Bank of India.Pointing out that 44 CPSEs have been listed, Chidambaram said the government will provide Rs 16,436 crore as equity support and Rs 3,003 crore as loans to the Central Public Sector Enterprises. The Economic Survey tabled in the Parliament yesterday has also asked the government to list all unlisted public sector enterprises and sell a minimum 10 per cent equity to the public. (PTI) |
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| http://www.headlinesindia.com/budget/index.jsp?news_code=71623 |
Following are the highlights of the Interim Railway Budget for 2009-2010:
HIGHLIGHTS OF INTERIM RAILWAY BUDGET
* Lalu Prasad presents UPA’s last rail budget in its term
* Railways made Rs 90,000 cr profit
* 2 pct cut in all AC and mail train fares
* Rs 10,500 cr allocated for pension requirements
* 6th Pay Commission to hike expense by Rs 13,500 cr
* Rlys laid 1100 kms of new rail lines
* Bhubaneshwar-New Delhi Rajdhani becomes 4 days a week
* New Delhi-Ahmedabad Rajdhani becomes daily
* Steep fall in container traffic
* Work on Delhi-Mumbai freight corridor started
* Rlys to invest Rs 35,900 cr in 2009
* Railway connectivity to Kashmir initiated
* Passenger growth up 14 pct
* Research on for bullet trains
* FY10 operating ratio seen at 88%
* Mumbai-Bikaner super-fast bi-weekly
* Nizamuddin-Bangalore Rajdhani tri-weekly
* Passenger trains to have 22 pct more capacity
* Efficiency of passenger and goods wagons to be hiked
* Goods trains to have 78 pct added capacity
* 4 Railways inquiry call centres set up
* Electrification of 1000 km of rail lines completed
* Wagon production to be hiked from 6600 to 15000
* Railways invested Rs 70,000 cr out of surplus
* Railways to invest Rs 2,30,000 cr in 11th plan
* Railways reported Rs 25,000 cr cash surplus last year
* Revenues have risen by 39 paise a tonne/km since 2001
* Costs have fallen by 7 paise a tonne/km since 2001
* Gaps in the network will be bridged: Lalu
* Railways got loans at 4 pct
* Accidents come down from 325 in 03-04 to 194 in 07-08
* Railways has grown freight at the rate of 8 pct over last 5 yrs
Highlights of Interim Railway Budget, 2009-10
* Lalu presents interim Railway budget
* This is UPA’s last rail budget in its term
* Railways has a Rs 90,000 cr profit
* Rs 10,500 cr allocated for pension requirements
* 6th Pay Commission to hike expense by Rs 13,500 cr
* Steep fall in container traffic
* Work on Delhi-Mumbai freight corridor started
* Rlys to invest Rs 35,900 cr in 2009
* Railway connectivity to Kashmir initiated
* Passenger growth up 14 pct
* Passenger trains to have 22 pct more capacity
* Efficiency of passenger and goods wagons to be hiked
* Goods trains to have 78 pct added capacity
* 4 Railways inquiry call centres set up
* Electrification of 1000 km of rail lines completed
* Wagon production to be hiked from 6600 to 15000
* Railways invested Rs 70,000 cr out of surplus
* Railways to invest Rs 2,30,000 cr in 11th plan
* Railways reported Rs 25,000 cr cash surplus last year
* Revenues have risen by 39 paise a tonne/km since 2001
* Costs have fallen by 7 paise a tonne/km since 2001
* Gaps in the network will be bridged: Lalu
* Railways got loans at 4 pct
* Accidents come down from 325 in 03-04 to 194 in 07-08
* Railways has grown freight at the rate of 8 pct over last 5 yrs
* Research on for bullet trains
* FY10 operating ratio seen at 88%
* Mumbai-Bikaner superfast bi-weekly
* Nizamuddin-Bangalore Rajdhani tri-weekly
* Lalu gives 2 pct cut in AC and mail train fares
* Forty-three new trains announced
* Laid 1100 kms of new rail lines
* Bhubaneshwar-New Delhi Rajdhani becomes 4 days a week
* New Delhi-Ahmedabad Rajdhani becomes daily
DISINVESTMENT OF RITES AND IRCON
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LOK SABHA
The Ministry of Railways is not in favour of disinvestments in Rail India Technical and Economic Services (RITES) and Indian Railway Construction Corporation (IRCON International Ltd.)
RITES is a consultancy organization under the Ministry of Railways which carried out studies as required by the Indian Railways, clients railways abroad and other sectors. RITES also is in the business of export of rolling stock and inspection of materials procured by the Railways. IRCON is in the field of construction of railway projects which are of specialized nature. The Ministry is not is favour of disinvestments of RITES and IRCON International Ltd., for the following reasons:
IRCON and RITES being construction and consultancy organizations can keep only a small work force on permanent basis. In the existing scenario of stiff competition in the construction industry. Both in domestic and international market, only companies which are lean with respect to their fixed cadre can sustain their profits. Presently the skills for undertaking rail related consultancies are acquired by RITES through personnel on deputation from railways. After disinvestments it will not be possible to induct railwaymen into RITES. It will affect the competence of the organization to carry out rail related consultancy in India and abroad.
Activities of RITES/IRCON abroad an opportunity to railway personnel to observe developments which benefit the railway officers on repatriation.
Indian Railways have got surplus manufacturing capacity in production units for manufacture of locomotives and coaches. RITES and IRCON are the export arms of Indian Railways for export of locomotives, coaches etc. For export of locomotives and coaches, a close coordination between Railway Research, Design and Standard Organization, Indian Railway manufacturing units and RITES is required. The railway rolling stock requirement varies from country to country and considerable design inputs and manufacturing effort is required in most cases, e.g. the Indian Railways in association with RITES and IRCON have developed locomotive suitable for ‘Cape Gauge’ which is prevalent in some African countries and Southeast Asian countries.
RITES also carries out independent third party acceptance testing for components procured by the Indian Railways. If RITES were to be disinvested, Indian Railways would have to create a new organization for this.
Many of the projects undertaken abroad for construction and for operation of railway system are given to the PSUs on the strength of Indian Railways backing, e.g. the Letter of Intent given by the Malaysian Government for construction of US$ 1.5 billion Ipoh-Padang Besar doubling project on single tender without going through the process of formal tendering is only on the strength of the backing of Ministry of Railways, Government of India. Similarly, the contracts for operation management of Railway System in Colombia and Zambia have been secured by RITES based on the Railway operating experience of Indian Railways.
Disinvestments of IRCON International Ltd., is under examination by Disinvestment Commission, who have yet to make their recommendations. For Disinvestment in RITES, Commission has recommended that:
A minimum of 51% of the Government equity may be given to employees (both present and past) of RITES. Government may retain 25% of the equity. Balance equity may be distributed among reputed infrastructure consultancy organization and infrastructure leasing and financing organizations after suitable pre-qualification;
The Railways should have an agreement with RITES under which continuous induction of talented railway personnel would be guaranteed for a period of 5 years.
In addition, the Disinvestments Commission has also suggested:
The Railways should develop consultancy expertise outside railway area with a view to increase non-railway consultancy business.
Export of rolling stock handled by the RITES can be handled directly by the Railways.
Inspection work related to quality assurance of purchased items presently entrusted to RITES may be handled by the Ministry of Railways.
Ministry of Railways have not agreed to the recommendations and suggestions of Disinvestments Commission for disinvestments of RITES as listed above for the following reasons:
The present net worth of RITES is Rs.158 crores and the share capital is Rs.2 crores. For sale of 51% of shares to employees, the Government should be able to realize 51% of the net worth i.e. Rs.80 crores approximately. Thus the hundred rupee share would have to be sold for approximately Rs.7800/-. Also the expected annual dividend of Rs. 3 crores, would yield an average return of only 1.9% to the employees. To realize Rs.80 crores through employees as recommended by Disinvestments Commission, on the average investment of the present employees of the RITES would be in the range of Rs.3.5 lakhs per employee if all the present employees opt for it. This may not be possible.
Deputation of railway personnel to RITES, after disinvestments, would not be possible.
Disinvestment Commission’s suggestion that RITES may develop expertise in non-railway business, after disinvestments, would defeat the very purpose for which RITES was initially set up. Indian Railways requirement of consultancy expertise in railway area would get diluted and may not be available after sometime as availability of railway expertise in RITES dwindles.
The export of rolling stock was delegated to RITES only because Indian Railways was unable to handle it directly through government departmental setup. The recommendation if accepted would immediately affect export of Railway rolling stock and Indian Railways efforts to utilize spare capacity available in workshops.
The work of quality assurance for purchase items was hived off as a non-core activity to RITES as an independent third party. If Ministry of Railways were to carry out inspection work, they would need to create an organization for the same at a time when Indian Railways are making every efforts to contain growth of manpower.
THE disinvestment exercise — politically the correct word for privatisation — is at a crucial stage, pulled in various directions by political and business interests. At stake is the fiefdom of public sector units.
But, looking at the disinvestment exercise dispassionately, it is actually a blessing in disguise. For, if nothing else it will certainly end politicians enjoying free lunches at the cost of the consumer and the tax-payer.
Economic Theory of Politics is a well-known model that assumes that voters are `utility’ maximisers and political parties `vote’ maximisers. While the individual voter will favour a political party which he considers, or perceives, will provide him with the highest utility (welfare) from government activity, a political party will aim to formulate policies to achieve these goals.
Unfortunately, this conflicts with the social welfare maximising model of government behaviour under which the politicians are supposed to seek office to push through policies for social good. Declining levels of political integrity over the last couple of decades have resulted in widespread abuse of political power for achieving narrow gains and securing personal vote banks. Over the years, unfortunately, the PSUs have become unwilling tools for some unbridled pork barrel politics in the grubby hands of politicians.
The Unit Trust of India is still struggling to get out of the huge losses it suffered on account of unwise investments it made reportedly at the behest of the Finance Ministry. Now, the petrol pump scam has brought into open the blatant favouritism indulged in by the political class, in general. Free lunches enjoyed at Hotel Ashoka and other ITDC units are a legend and recently the Minister for Railways chose to ignore expert advice by announcing the creation of seven new zones. Ostensibly to improve administrative capability of the 1.7-million behemoth, the apparent objective is creation of more job opportunities in the beneficiary States, adding to the already bloated work force and adversely effect the Railway’s operational efficiency.
It was the indomitable Lady Margaret Thacher who, as Prime Minister, pursued for 11 long years the privatisation of Britain’s nationalised industries with a single-minded determination borne out of the conviction that government had no business to be in business. Since then former citadels of Socialism have embraced the new mantra, broken up state monopolies selling them to private parties choosing to let market forces determine their future course. In the satellite states of the former USSR, the Eastern Bloc countries, Zambia, Vietnam, and China, private enterprise is no longer a dirty word!
What exactly does privatisation involve, and what are the mechanics of achieving the ultimate goal, noble or otherwise? In the UK it involved transfer of public sector resources to the private sector, some of the most publicised sales being of British Telecom, British Gas, British Airways and Regional Water Boards.
Privatisation could also involve deregulation — that is, permitting private sector participation by lifting restrictions to enable them to compete. The Open Skies policy of Rajiv Gandhi saw a number of airlines jostling for airspace, in the process making Indian Airlines, the virtual monopoly till then, more efficient and customer friendly.
Recent outright sale of whole or parts of PSUs has resulted in a few success stories in India. Sale of IBP for Rs 1,154 crore to IOC was followed in quick succession by sale of controlling interest in VSNL to the Tatas for Rs 3,689 crore; IPCL to Reliance for Rs 1,491 crore; Hindustan Zinc to Sterlite for Rs 445 crore and now the automotive sector flagship, Maruti Udyog, to Suzuki for Rs 2,424 crore.
Sale of land and property is also a highly profitable exercise. In the UK, tenants of local authorities were given the right to buy their own homes under the 1980 Housing Act. About 1.5 million houses were sold in the 1980s, and the amount realised was as much as from the sale of industries. However, a recent allotment of land to 219 government, social, educational, religious, and cultural institutions has reportedly resulted in the Union Urban Development Ministry drawing considerable political flak.
Reasons given for privatisation have been many, the first being that it generates a great deal of income for the government, giving rise to the now familiar allegation of selling `family silver’. In the exercise carried out in UK, the water companies fetched over $10 billion, British Gas about $13 billion, and British Petroleum over $12 billion. The Indian experience, in spite of the various allegations of a sell off to the private sector and other minor hiccups, has so far been quite encouraging.
In quite a few cases the PSUs were poorly managed, and lacked the incentive to make profit, since their main aim was to provide a public service. It has been argued that when privatised they would be forced to reduce costs by cutting down excess manpower, improving services and showing a profit. Sterlite’s take over of Balco could be a test case and will hopefully prove to be a win-win situation for all involved, including its vast labour force.
It is argued that consequent to deregulation an organisation would be forced to improve services and charge competitive prices. It would be forced to innovate; consumers would benefit from reduced prices and also have a greater choice. The recent steep fall in airline tariff appears to have more than justified the deregulation and the Open Skies policy adopted nearly a decade back. Now thanks to the cellular wars, consumers have benefited from the continuing drop in telephone tariffs.
In the Indian scenario perhaps one of the most important gain would be that in the private sector; with little political interference, the PSUs would be free to plan their growth, set price and investment levels and so on, all determined by market forces.
Privatisation is also supposed to increase ownership of shares which would lead to a `property-owning democracy’. This would result in people having a stake in the success of the company and the economy in general.
Workers participation could be given a totally new meaning, with equity being given as bonus in a profit sharing exercise.
Undoubtedly, privatisation is expected to improve accountability to shareholders and consumers who would expect a better return on their investment and a better quality of services at a fair price. The bottomline would be to give customer satisfaction at the lowest possible unit cost, to be achieved by improved efficiency, higher productivity and better response to customer needs.
But to what extent has it been possible to achieve these objectives? What are the lessons learnt from the exercise carried out in the UK? Consequent to privatisation of telephones, electricity and gas supply the cost of services fell, and quality of performance also did improve. However, the consumers were in for a nasty shock when water supply companies raised the prices by 15 per cent, and buyers of new homes were required to cough up six times the previous charges for obtaining a pipe connection from the water mains!
Deregulation of the bus services outside London led to a fierce and somewhat unhealthy competition. For instance, in Manchester the 60-odd private operators resorted to speeding along the routes, trying to beat their competitors to bus stops, not unlike the infamous Red Line buses of Delhi!
Offices of Fair Trading (OFT) were deluged with complaints about `unfair’ competition. The Monopolies and Mergers Commission complained about `unstable and potentially destructive competition with little or no benefit to the consumers’, and called on the government to set up a `searching review’.
In all cases, privatisation did not lead to greater competition. For instance, some of the public monopolies have now become private monopolies and have only exploited their position to earn higher profits. It is now argued that some of the natural monopolies which had been sold off should have remained under government control to prevent duplication of resources. While it is too early to take stock and list out the lessons learnt in the ongoing exercise in India, eliminating political control and the resultant abuse of power and corruption could perhaps be the single most important gain. And that in itself is quite something for the one billion Indians to celebrate about!
(The author is a former Member (Mechanical) of the Railway Board.)
Govt flayed for ‘casual approach’ to disinvestment
Press Trust of India
Posted online: Sunday, May 18, 2003 at 1639 hours IST
New Delhi, May 18: Charging the government with adopting a casual approach on disinvestment, a Parliament standing committee has asked the Centre to come forward with a comprehensive policy document on disinvestment policy.
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“The committee is rather perturbed by government’s casual approach towards the committee’s repeated recommendations to bring out a comprehensive document on disinvestment policy which could be laid before Parliament for its approval”, it said.
“The committee once again desires that the government should take note of their recommendation seriously”, the report of the standing committee on finance, headed by N Janardhana Reddy, and tabled in Parliament recently, said.
The report said policy makers, be it in the administrative ministries or in the state governments, occasionally face a dilemma. “They are often convinced about the merits of privatisation, but do not know how to implement it”.
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The enormous outpouring of literature on privatisation, the dramatic success of privatisation in a number of diverse countries and the economic realities of excessive burden of overstretched public sector in their states have convinced them to try privatisation, the committee noted.
“Yet to most of them the process of implementing privatisation is often shrouded in mystery. This fear of the unknown often discourages them from taking the first step”.
The report said the committee had taken serious note of the fact that the disinvestment process was being done on a case-to-case basis without any broad based comprehensive policy document that would give consistency to the disinvestment policy/process.
The committee was of the opinion that a decade long exposure and exercise with disinvestment was sufficient to equip the government with the requisite competence to bring out a uniform policy/procedure for disinvestment.
The Ministry of Disinvestment, during the examination, said the policy on disinvestment has evolved over time and its fundamental framework is stable over the medium term and is comprehensive and consistent.
It said all non-strategic PSUs are to be disinvested except IOC, ONGC and GAIL, where 51 per cent equity is to be retained and Oil India Limited that is not to be disinvested.
The areas that have been classified as strategic and which are not to be disinvested include arms and ammunition and the allied items of Defence equipment, Defence aircraft and warships.
Atomic energy (except in areas related to the generation of nuclear power and applications of radiation and radio-isotopes to agriculture medicine and non-strategic industries) and railway transport would also not be disinvested, the government said.
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Disinvestment policy to be reviewed From B L Kak NEW DELHI, May 4: Official announcement about a hike in rail passenger fares is expected anytime in the coming days. The Railway Ministry is, currently, giving final touches to the plan, which envisages a post-budget hike in fares and a cut in the Plan outlay for 2001-2002 financial year. The Railway’s Plan, which was prepared when Ms Mamata Banerjee was the Railway Minister, required to be corrected to make it more realistic. After this message was conveyed to the present Minister for Railways, Mr Nitish Kumar, by the Railway Board, high-level consultations took place. And, on more than one occasion, the Prime Minister, Mr Atal Behari Vajpayee, too was involved in the consultations. These consultations were also necessitated after a team of experts had made a pointed reference to the likely slippages in budgetary projections. Sources in the Railway Ministry said that slippages were anticipated both in internal revenue generation as well as private investments targeted under the Build Own Lease and Transfer (BOLT) scheme. These sources confirmed that passenger fares were not raised by the former Railway Minister, Ms Mamata Banerjee, in view of the Assembly elections in four States, including her home State, West Bengal, and one Union Territory. A final view on the timing of passenger fare revision, sources pointed out, would have to be taken by the political establishment. It was in this context that the Railway Board interacted with Mr Nitish Kumar on the question of seeking approval of all the constituents of the NDA Government. At the same time, indications were by no means uncertain that the Railway Ministry planned to go ahead with the cut in Plan outlay. And if these indications were any guide, the allocation, which was budgeted at Rs 11,090 crores for the current financial year, was expected to be slashed by 10 to 20 per cent. This, it was also pointed out, would impact investments under major heads including rolling stock procurement, new line projects and gauge conversion projects. The fund flow for the Rs 11,090-crore budgeted Plan includes Rs 3,540 crores as budget support and Rs 4,000 crores from market borrowings. The balance of 3,550 crores would come from internal resource generation. On the other hand, while the Centre’s disinvestment policy through sale of equity in public sector undertakings to strategic partners will be review in the near future, the NDA Government is said to have agreed to revert to the old proposal of divesting the shares of state-owned companies to the public and to institutional investors. The policy-makers seem to have been prompted to rethink the strategy on disinvestment in view of the controversy over the Balco sale, paucity of bidders and the possibility of “tainted companies” being awarded deals. The Cabinet Committee on Disinvestment is said to have been told by experts that spreading the shares widely among the public and institutional investors will not be a bad proposition at all. A top Government source told EXCELSIOR that the Prime Minister had been told by experts that the offer of shares to institutional investors would make a lot of political sense and gain acceptance across the political spectrum at a time like this when one comes across an extremely difficult political scenario with parties of various hues making up the NDA and the stand taken by the principal opposition party, the Congress, on the strategic sale. The Department of Disinvestment, the source said, was presently in the process of framing guidelines which would determine the eligibility of companies to take part in the disinvestment process. If corporate fraud is listed as a serious crime for banning companies from participating in the disinvestment process, many of the domestic firms may not be eligible to bid. |
| http://www.dailyexcelsior.com/01may05/national.htm#2 |
| ITDC looks for life after disinvestment
16 Aug 2001, 2157 hrs IST, Maneesh Pandey
can life be breathed again into the indian tourism development corporation (itdc), the pachyderm of hospitality trade? for nearly four decades the government-run itdc has dominated the scene, now earmarked to be parcelled off to private players. ashwani lohani, who has recently taken over as itdc chairman, is a die-hard optimist. despite disinvestment plans, this tourism department director who put ‘fairy queen’ back on the rails and secured for the darjeeling hill railway unesco heritage site status, outlines turnaround plans to maneesh pandey. excerpts: there is a frequent allegation that the government is not getting the real money out of its psus. how’ll you ensure itdc properties get their value? the usp of the itdc properties is the excellent and prime location of the hotels in all major cities. itdc hotels are also known for their excellent food. besides, itdc is still regarded as one of the pioneers in the tourism sector in the country. we have to highlight these unique features, through aggressive result-oriented marketing. of course, we will back up our efforts through improved maintenance and better service. there is absolutely no reason why we will not be able to get the real value from itdc properties. : as you say, itdc has excellent and prime-location properties. should the government, instead of selling, lease these hotels and properties, and improve the finances? the disinvestment of itdc properties is a decision of the government of india which is being executed through the department of disinvestment. i can only say that we are aiming at improving the financial health of the company by way of improved operations despite the disinvestment process. tell me frankly, is there really any hope left for itdc? yes. what we have to realise is that our operations can still be made profitable as only our hotels are being disinvested. itdc will still remain. our hotel operations form roughly 50 per cent of our total operations. we can grow again though not necessarily in the same kind of operations. and most importantly, we’re more hopeful for the fact the the drive to succeed has come from the top, the tourism minister, ananth kumar, himself. so, there’s no backtracking on that front and we’ve to deliver the results. some of the enterprises (tatas, oberois, leela, etc) virtually started fromthescartch and are today awesome and reputed empires. why is the picture opposite with itdc? the inherent problems/constraints of government-run enterprises are too well known to be further elaborated. still, i would say that itdc has definitely grown over the years. however, it cannot be denied that it could have grown much more than what it has so far. you seem sure of generating funds with whatever you’re left with. how? what’re your plans and strategy in this direction? i have already told you that our focus is on improving the operations. our objective is very clear: aggressive, target-fed and result-oriented marketing. we believe in the ibm philosophy that everyone has to be involved in marketing. so i am also involved fully with my senior management team in the marketing effort. we’re also looking at alternative sources of revenue generation: consultancy, event management and railway catering both on trains and at stations (food plazas) are areas under consideration. all these hold immense potential for revenue generation. we’re also exploring other avenues which include hosting special events in hotels to generate interest in the property. our delhi hotels have planned around 15 food/special festivals in august/september alone and 20 more are scheduled in october/november. we are also looking with interest at forthcoming major events like the afro-asian games and pata conference. hosting big delegations in such events will help earn itdc both name and money. also a very intense and focused ”recovery drive” is to start soon to recover dues. your itdc staff appear to have high hopes from various schemes. have they been offered anything special? i have not offered anything special to my staff. i have only told them that my desire is to see that the itdc relives its old glorious days. but yes, few things — they’re free to convey their regrets, if any complaints, to me; the managers have been granted more autonomy, but i want results. i have always believed that the greatest strength and also the asset of any organisation is the human resource and handling them well is our primary focus area. do you hope to alter the sorry picture of unprofessional management and irritating services sector — a hallmark of goveernment enterprises? i agree the bottomline has to become green and that too, quickly. our strategy is basically to improve the working environment and to build a positive work culture. motivating and recognising the staff is top on agenda. i have already sent my signed message to all my 7000-plus staff. we are working on a scheme to bestow ‘itdc-star’ on our brightest staff. i am more than confident of their support and positive response. we shall aggressively introduce training at all levels and this coupled with motivational and other factors is bound to give noticeable results in a short time frame. on promotion and marketing front, itdc is nowhere in the race. travellers are more aware of smaller privately-managed hotels than your properties located all over india. how’re you going to change that image? we’re already looking into this aspect and made it a priority issue. the revamp has started and we will come out of the shell. you shall see more of itdc in the travel sector, be it marts, media or market. and all our plans are to start in a matter of days — we cannot afford to talk in terms of weeks or months. and finally, i would like to add that i believe that success or failure is a state of the mind. we have decided to succeed because we know we have the determination, strength and inherent capability to do so. and with support and encouragement of our result-oriented tourism minister, itdc’s ”operation turn-around” will succeed.
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Rural Railways and Disinvestment in Rural Areas
John Whitelegg
Regional Studies, 1987, vol. 21, issue 1, pages 55-63
Abstract: WHITELEGG, J. (1987) Rural railways and disinvestment in rural areas, Reg. Studies 21, 55–63. The paper examines railway policies in Britain over a twenty-year period with reference to the development of disinvestment in rural areas. Railway closures are discussed as one example of state disinvestment in rural areas with consequences for employment, social structures and the balance of power between different groups in rural communities. In the argument about the closure of lines these general issues may well be ignored but they have a significance which goes beyond individual closures and beyond railways themselves. WHITELEGG J. (1987) Chemins de fer ruraux et désinvestissement dans les zones rurales, Reg. Studies 21, 55–63. Cet article cherche à examiner la politique des chemins de fer en Grande-Bretagne sur une période de vingt ans quant au développement du désinvestissement dans les zones rurales. La fermeture des chemins de fer est discutée en tant qu’exemple du désinvestissement de l’Etat dans les zones rurales influant ainsi sur l’emploi, les structures sociales et l’equilibre entre divers groupes sociaux au sein des communautés rurales. En discutant de la fermeture des lignes il se peut qu’on n’ai pas pris ces questions générales en considération, mais leur importance va au-delà non seulement des fermetures individuelles mais aussi des chemins de fer eux-mêmes. WHITELEGG J. (1987) Ländliche Eisenbahnen und der Abzug von Kapitalanlagen in ländlichen Gebieten, Reg. Studies 21, 55–63. Diese Abhandlung untersucht die grund-sätzlichen Bestrebungen hinsichtlich des Eisenbahnnetzes während eines Zeitraums von zwanzig Jahren in Gross-britannien, wobei auf die Entwicklung des Abzugs von Kapitalanlagen hingewiesen wird. Stillegungen von Eisenbahnlinien werden als ein Beispiel des staatlichen Abzugs von Kapitalanlagen in ländlichen Gebieten mit ihren Folgeerscheinungen für den Stellenmarkt, die sozialen Stukturen und das Gleichgewicht der Kräfte unter ver-schiedenen Gruppen ländlicher Gemeinden besprochen. In der Debatte über die Stillegung von Linien mögen diese allgemeinen Erwägungen durchaus übersehen werden, doch sind sie von einer Bedeutung, die über einzelne Stillegungen und das Eisenbahnnetz selbst hinausreicht.
Keywords: Railway closures; Rural areas; Social processes; Fermeture des chemins de fer; Zones rurales; Processus sociaux; Eisenbahnstillegung; Ländliche Gebiete; Gesellschaftliche Prozesse (search for similar items in EconPapers)
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Defer disinvestment in OIL, ONGC: Commission
The Disinvestment Commission has said the proposed disinvestment in Oil India Limited and Oil and Natural Gas Corporation Limited should be deferred and suggested that no disinvestment should be made in Railway India Technical and Economic Services Limited till the uncertainty surrounding the Iraqi dues was resolved satisfactorily.
Releasing the Commission’s third report in New Delhi on Friday, its chairman G V Ramakrishna recommended the induction of a strategic partner in the public sector Kudremukh Iron Ore Company Limited. He also said the shares of Mahanagar Telephone Nigam Limited and Container Corporation of India could be sold up to 49 per cent in a phased manner including offering of shares of MTNL to foreign investors.
The Commission has so far examined 15 public sector companies, out of the 50 referred to it. Out of the 15, the Commission has suggested strategic sale of five companies and offer of shares in case of three companies. However, the offer of shares at a later date was recommended in case of two companies while no disinvestment was suggested for one company. Outright sale was recommended in case of two companies while it had deferred its decision in case of two companies.
Ramakrishna said the Commission has expressed concern over the delays in implementing its recommendations on individual public sector units, particularly where the government’s shareholding had to be reduced below 50 per cent or it involved strategic sale.
He said the delay may adversely affect negotiations which the PSU concerned might be carrying on with regard to joint ventures, long-term collaboration and similar other arrangements.
The Commission chairman suggested that there was a need to reduce the time lag between the submission of reports by the commission and the government’s decision thereon. The Commission would like to point out that unless there is ‘’speedy implementation of the recommendations made in successive reports of the commission, it would be difficult to achieve disinvestment of the order of Rs 4,800 crore as envisaged by the government for 1997-98 besides the other objectives of the disinvestment process itself,” he added.
Ramakrishna also expressed concern over the disinvestment in some loss-making PSUs without reference to the Commission. He said, ”This will not only be contrary to the major objectives and terms of reference of the Commission but also prevent the Commission from taking a coordinated view of disinvestment in PSUs in accordance with a broad-based strategy.”
The Commission noted with concern that even where disinvestment has already taken place, there was no change in the composition of board to give representation to the non-government share-holder.
In order to improve the investors’s perception of PSUs and to enhance share value in subsequent investment, it was necessary to induct representatives of non-government share-holders immediately by amending the articles of association, where necessary.
The Commission has also recommended induction of experts and professionals from outside as non-executive directors to inspire investors’s confidence in the disinvestment process, Ramakrishna said.
He said the Commission was happy to note the government’s move of giving greater autonomy to nine selected PSUs. The Commission has already made recommendations for graded delegation of autonomy, he added.
Ramakrishna said the government holdings in Concor may be restricted to 10 million shares and the company may go in for a public issue of 12.5 million shares, to bring down the government holding to around 51 per cent.
It also recommended that a book-building process be adopted to make institutional investors disinvest in the Indian market, which could be followed with a retail offering to small investors at a discount of 10 per cent. The company can also join the National Securities Depository Limited before any issue is contemplated from either the company or from the government.
Small investors should be allowed to buy shares in quantities much less than normal tradeable lots, which can also be traded on National Securities Exchange with discount for odd lots.
With regard to KLOCL, Ramakrishna said the Commission has recommended strengthening the management of the company by appointing a competent chief executive and inducting competent professionals from outside on the board.
The Commission also favours the induction of a strategic partner into the company by offering 30 per cent of equity. The government may also enter into an agreement with the strategic partner providing for a further dilution of government equity to the extent of 43 per cent within two years through a combination of further offer of equity shares of 10 per cent to the strategic partner and public offer of balance to domestic institutional investors and real investors. This would leave 26 per cent of the equity with the government, Ramakrishna added.
Such phased disinvestment, he said, would enable the government to realise a proper value of its shares.
With regard to the MTNL, the Commission has pointed out that 34.27 per cent shares of the company have already been disinvested leaving a balance of 14.73 per cent or 88.3 million shares for disinvestment. The commission has recommended a global depository receipts issue of 60 million shares (10 per cent). After the GDR issue, a domestic offer of balance 28.3 million shares may be made to the institutional investors and small individual investors at a discount price over the institutional prices.
The Commission noted that the MTNL has an impressive track record and was a ‘’strong performer” in the past 10 years. It recommended full autonomy to the board to enable it to conduct its operations successfully in the increasingly competitive environment.
As for OIL, the commission recommended that disinvestment of government shares as also the company’s own initial public offer need not be considered for the present. This can be considered after a year or so when the company’s own prospects would be clearly established through the outcome of exploration activities in North Brahmaputra area and the government’s policy on administrated pricing mechanism.
Ramakrishna said the scope for disinvestment of government shares could be determined after balancing the requirement of the company funds. Any disinvestment prior to it would result in a loss to the exchequer as an announcement regarding the dismantling of APM would significantly improve the share value. The commission would like to review the position after a year and make specific recommendations on disinvestment in the company.
In ONGC’s case, the Commission has suggested reviewing the position from time to time and making recommendations at the appropriate time considering various factors.
privatization – Overview, Types of Privatization/Methods of Government Disinvestment
The return to private ownership of organizations formerly owned by the state. The government issues shares in the company to be privatized, and offers them for sale to the public. The company therefore becomes answerable to the shareholders and not to the government. Several cases of privatization took place in Britain in the 1980s, including British Telecom and British Gas. The government was able to raise considerable sums of money by this means, thus helping to reduce its borrowing requirements and cut tax rates. The privatization of certain public-sector utilities such as the railway system has led to criticism of the companies’ safety procedures in favour of cost-cutting.
Privatization (alternately “denationalization” or “disinvestment”) is the transfer of property or responsibility from the public sector (government) to the private sector (business).
Overview
Although there is a large middle-ground between these polar positions, the pro and con ideologies pertaining to privatization are these:
The Pro-Privatization Argument Synopsis
Proponents of privatization believe that private market actors can more efficiently deliver any good or service than government can provide. Privatization proponents’ faith in the market is philosophically based in an economic principle of competition: that where there is a profit to be made, competition will inevitably arise, and that competition will inevitably draw prices down while increasing efficiency and quality. By the same principle, privatization proponents feel that government lends itself to waste because it has no competition. A related argument for privatization says that it is preferable to maximize the number of social arenas open to entrepreneurship- charging government with robbing would-be entrepreneurs, and society at large, by meddling in the market.
The Anti-Privatization Argument Synopsis
Opponents of privatization believe certain parts of the social terrain should remain closed to market exploitation in order to protect them from the unpredictability and ruthlessness of the market (such as Private prisons).
The controlling ethical issue in the anti-privatization perspective is the need for responsible stewardship of social support missions. Privatization opponents believe that this model is not compatible with government missions for social support, whose primary aim is delivering affordability and quality of service to society. Opponents also would claim that many of the utilities which government provides benefit society at large and are indirect and difficult to measure. As a result, many functions which government provides, such as defense, have been historically identified as being unproductive and unable to produce a profit.
Many privatization opponents also warn against the practice’s inherent tendency toward corruption. As many areas which the government could provide are essentially profitless, the only way private companies could, to any degree, operate them would be through contracts or block payments.
Some would also point out that privatizing certain functions of government might hamper coordination, and charge firms with specialized and limited capabilities to perform functions which they are not suited for. In rebuilding a war torn nation’s infrastructure, for example, a private firm would, in order to provide security, either have to hire security, which would be both necessarily limited and complicate their functions, or coordinate with government, which, due to a lack of command structure shared between firm and government, might be dificult.
There are various precedents in history which some would claim as examples in which improper privatization, or the failure of government to conduct certain functions, caused various complications. In the 18th Century, military functions such as maintaining forts and garrisons along the African coast were, in effect, privatized to the East India Company, with parliament obliged to pay 13,000 pounds a year to support the East India Company in this end. In the reconstruction of Iraq, the government decided to contract out many different reconstruction functions to private firms. The uncoordinated action between private emergency relief agencies, as well as the military (which would often turn back relief trucks) resulting in the poor response to the storm that many would claim was a result of this privatization.
Types of Privatization/Methods of Government Disinvestment
There are three main methods of privatization:
Share Issue privatization (SIP) – selling shares on the stock market Asset Sale privatization – selling the entire firm or part of it to a strategic investor, usually by auction or using Treuhand model Voucher privatization – shares of ownership are distributed to all citizens, usually for free or at a very low price.Share issue privatization is the most common type. A political government may only be motivated to improve a function when its poor performance becomes politically sensitive, and such an improvement is easily reversed by another regime. Conversely, the government may put off improvements due to political sensitivity and special interests — even in cases of companies that are run well and better serve their customers’ needs. A political government tends to run an industry or company for political goals rather than economic ones. Privately held companies can more easily raise investment capital in the financial markets, investment decisions are governed by market interest rates. Poorly managed state companies are insulated from the same discipline as private companies, which could go bankrupt, have their management removed, or be taken over by competitors. Private companies make a profit by enticing consumers to buy their products in preference to their competitors’.
The basic economic argument given for privatization is that governments have few incentives to ensure that the enterprises they own are well run. As Governments may borrow money more cheaply from the debt markets than private enterprises, they will squeeze out more efficient private companies through this misallocation of resources.
Where governments lack it, it is said that private owners do have profit motive. Ideally, privatization propels the establishment of social, organizational and legal infrastructures and institutions that are essential for an effective market economy.
Privatizing a non-profitable (or severe loss-making) company which was state-owned would shift the burden of financing off taxpayers, as well as freeing some national budget resources which may be subsequently used for something else.
The main political argument for privatization is that of civil liberties and privacy.
Anti-Privatization
Opponents of privatization dispute the claims concerning the alleged lack of incentive for governments to ensure that the enterprises they own are well run, on the basis of the idea that governments are proxy owners answerable to the people. It is argued that a government which runs nationalized enterprises poorly will lose public support and votes, while a government which runs those enterprises well will gain public support and votes. Thus, democratic governments do have an incentive to maximize efficiency in nationalized companies, due to the pressure of future elections.
Furthermore, opponents of privatization argue that it is undesirable to transfer state-owned assets into private hands for the following reasons:
Performance. the government is motivated to performance improvements as well run businesses contribute to the State’s revenues. The public does not have any control or oversight of private companies. The government may seek use state companies as instruments to further social goals for the benefit of the nation as a whole. If a government-owned company providing an essential service (such as water supply) to all citizens is privatized, its new owner(s) could lead to the abandoning of the social obligation to those who are less able to pay, or to regions where this service is unprofitable. Privatization will not result in true competition if a natural monopoly exists. Governments may more easily exert pressure on state-owned firms to help implementing Government policy. Private companies often face a conflict between profitability and service levels, and could over-react to short-term events. Private companies do not have any goal other than to maximize profits. A private company will serve the needs of those who are most willing (and able) to pay, as opposed to the needs of the majority, and are thus anti-democratic.
Successes and Failures of Privatization in the United Kingdom
Most economists agree that consumers may be worse off if a natural monopoly is privatized without being subject to a strong and effective regulation and creating independent regulatory institutions, otherwise it will be prone to serious market failures when in private hands. This seems to have been the case with rail privatization in the UK and in telecommunications in Mexico;
Privatization has been notably successful in telecommunications in Europe because genuine competition has arisen: the former state-owned enterprises lost their monopolies due to legislation and technological change, competitors entered the market, and prices for broadband access and telephone calls fell dramatically.
British Rail is an example of privatization program that has been deemed a failure. The track-owning company has been effectively repossessed by the British government, and many of the train-running companies are at risk of having their concession removed on the grounds that they fail to provide adequate services. In this case Stephen Byers (then Secretary of State for Transport) decided to call in administrators with regard to Railtrack (the infrastructure company created in 1993 and privatised in 1996) and transferring the infrastructure to the new Private Company Limited by Guarantee, Network Rail (a not for profit private company with no shareholders), Train Operation remains in the hands of private operators with franchises awarded by the Department for Transport (except for Merseyrail the franchise of which is awarded by Merseyside Passenger Transport Executive).
Alternatives to privatization
Municipalization
Transfering control of a nationalized business to municipal governement is an alternative sometimes proposed to privitization.
Sub-contracting
It is possible that national services may sub-contract or out-source functions to private enterprises. A notable example of this is in the United Kingdom, where many municipalities have contracted out their rubbish collection or administration of parking fines by tender to private companies.
In addition, the British government is debating the possibility of involving the private sector more in the workings of the NHS, principally by referring patients to private surgeries to ease the load on existing NHS human resources, and covering the cost of this.
Part ownership
An enterprise may be privatized, with a number of shares in the company being retained by the state.
Whilst partial privatization could be an alternative, it is more often a stepping stone to full privatization. Some state-owned companies are so large that there is the risk of sucking liquidity from the rest of the market, even in the most liquid marketplaces, and thus must be sold off bit by bit. The first tranche of a multi-step privatization would also in the first instance establish a valuation for the enterprise to mitigate complaints of under-pricing.
Notable privatizations
See also: List of privatizations
Privatization programmes have been undertaken in many countries across the world, falling into three major groups. The first is privatization programmes conducted by transition economies in Central and Eastern Europe after 1989 in the process of instituting a market economy. The second is privatization programmes carried out in developing countries under the influence of international financial institutions such as the World Bank and IMF. The third is privatization programmes carried out by developed country governments, the most comprehensive probably being those of New Zealand and the United Kingdom in the 1980s and 1990s.
Negative Popular Responses to Privatization
Privatization proposals in key public service sectors such as water and electricity are in many cases strongly opposed by opposition political parties and civil society groups. Opposition is usually strongest to water privatization – as well as Cochabamba (2000), recent examples include Ghana and Uruguay (2004). In the latter case a civil-society-initiated referendum banning water privatization was passed in October 2004.
Unindexed
Bel, Germà (2006), “The coining of `privatization´and Germany’s National Socialist Party”, Journal of Economic Perspectives 20(3), 187-194 Clarke, Thomas (ed.) (1994) “International Privatisation: Strategies and Practices” Berlin and New York: Walter de Gruyter, ISBN 3-11-013569-8 Clarke, Thomas and Pitelis, Christos (eds.) (1995) “The Political Economy of Privatization” London and New York: Routledge, ISBN 0-415-12705-X Juliet D’Souza, William L.
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<a href=”http://encyclopedia.stateuniversity.com/pages/17871/privatization.html”>privatization – Overview, Types of Privatization/Methods of Government Disinvestment</a>
The return to private ownership of organizations formerly owned by the state. The government issues shares in the company to be privatized, and offers them for sale to the public. The company therefore becomes answerable to the shareholders and not to the government. Several cases of privatization took place in Britain in the 1980s, including British Telecom and British Gas. The government was able to raise considerable sums of money by this means, thus helping to reduce its borrowing requirements and cut tax rates. The privatization of certain public-sector utilities such as the railway system has led to criticism of the companies’ safety procedures in favour of cost-cutting.
Privatization (alternately “denationalization” or “disinvestment”) is the transfer of property or responsibility from the public sector (government) to the private sector (business).
Overview
Although there is a large middle-ground between these polar positions, the pro and con ideologies pertaining to privatization are these:
The Pro-Privatization Argument Synopsis
Proponents of privatization believe that private market actors can more efficiently deliver any good or service than government can provide. Privatization proponents’ faith in the market is philosophically based in an economic principle of competition: that where there is a profit to be made, competition will inevitably arise, and that competition will inevitably draw prices down while increasing efficiency and quality. By the same principle, privatization proponents feel that government lends itself to waste because it has no competition. A related argument for privatization says that it is preferable to maximize the number of social arenas open to entrepreneurship- charging government with robbing would-be entrepreneurs, and society at large, by meddling in the market.
The Anti-Privatization Argument Synopsis
Opponents of privatization believe certain parts of the social terrain should remain closed to market exploitation in order to protect them from the unpredictability and ruthlessness of the market (such as Private prisons).
The controlling ethical issue in the anti-privatization perspective is the need for responsible stewardship of social support missions. Privatization opponents believe that this model is not compatible with government missions for social support, whose primary aim is delivering affordability and quality of service to society. Opponents also would claim that many of the utilities which government provides benefit society at large and are indirect and difficult to measure. As a result, many functions which government provides, such as defense, have been historically identified as being unproductive and unable to produce a profit.
Many privatization opponents also warn against the practice’s inherent tendency toward corruption. As many areas which the government could provide are essentially profitless, the only way private companies could, to any degree, operate them would be through contracts or block payments.
Some would also point out that privatizing certain functions of government might hamper coordination, and charge firms with specialized and limited capabilities to perform functions which they are not suited for. In rebuilding a war torn nation’s infrastructure, for example, a private firm would, in order to provide security, either have to hire security, which would be both necessarily limited and complicate their functions, or coordinate with government, which, due to a lack of command structure shared between firm and government, might be dificult.
There are various precedents in history which some would claim as examples in which improper privatization, or the failure of government to conduct certain functions, caused various complications. In the 18th Century, military functions such as maintaining forts and garrisons along the African coast were, in effect, privatized to the East India Company, with parliament obliged to pay 13,000 pounds a year to support the East India Company in this end. In the reconstruction of Iraq, the government decided to contract out many different reconstruction functions to private firms. The uncoordinated action between private emergency relief agencies, as well as the military (which would often turn back relief trucks) resulting in the poor response to the storm that many would claim was a result of this privatization.
Types of Privatization/Methods of Government Disinvestment
There are three main methods of privatization:
Share Issue privatization (SIP) – selling shares on the stock market Asset Sale privatization – selling the entire firm or part of it to a strategic investor, usually by auction or using Treuhand model Voucher privatization – shares of ownership are distributed to all citizens, usually for free or at a very low price.Share issue privatization is the most common type. A political government may only be motivated to improve a function when its poor performance becomes politically sensitive, and such an improvement is easily reversed by another regime. Conversely, the government may put off improvements due to political sensitivity and special interests — even in cases of companies that are run well and better serve their customers’ needs. A political government tends to run an industry or company for political goals rather than economic ones. Privately held companies can more easily raise investment capital in the financial markets, investment decisions are governed by market interest rates. Poorly managed state companies are insulated from the same discipline as private companies, which could go bankrupt, have their management removed, or be taken over by competitors. Private companies make a profit by enticing consumers to buy their products in preference to their competitors’.
The basic economic argument given for privatization is that governments have few incentives to ensure that the enterprises they own are well run. As Governments may borrow money more cheaply from the debt markets than private enterprises, they will squeeze out more efficient private companies through this misallocation of resources.
Where governments lack it, it is said that private owners do have profit motive. Ideally, privatization propels the establishment of social, organizational and legal infrastructures and institutions that are essential for an effective market economy.
Privatizing a non-profitable (or severe loss-making) company which was state-owned would shift the burden of financing off taxpayers, as well as freeing some national budget resources which may be subsequently used for something else.
The main political argument for privatization is that of civil liberties and privacy.
Anti-Privatization
Opponents of privatization dispute the claims concerning the alleged lack of incentive for governments to ensure that the enterprises they own are well run, on the basis of the idea that governments are proxy owners answerable to the people. It is argued that a government which runs nationalized enterprises poorly will lose public support and votes, while a government which runs those enterprises well will gain public support and votes. Thus, democratic governments do have an incentive to maximize efficiency in nationalized companies, due to the pressure of future elections.
Furthermore, opponents of privatization argue that it is undesirable to transfer state-owned assets into private hands for the following reasons:
Performance. the government is motivated to performance improvements as well run businesses contribute to the State’s revenues. The public does not have any control or oversight of private companies. The government may seek use state companies as instruments to further social goals for the benefit of the nation as a whole. If a government-owned company providing an essential service (such as water supply) to all citizens is privatized, its new owner(s) could lead to the abandoning of the social obligation to those who are less able to pay, or to regions where this service is unprofitable. Privatization will not result in true competition if a natural monopoly exists. Governments may more easily exert pressure on state-owned firms to help implementing Government policy. Private companies often face a conflict between profitability and service levels, and could over-react to short-term events. Private companies do not have any goal other than to maximize profits. A private company will serve the needs of those who are most willing (and able) to pay, as opposed to the needs of the majority, and are thus anti-democratic.
Successes and Failures of Privatization in the United Kingdom
Most economists agree that consumers may be worse off if a natural monopoly is privatized without being subject to a strong and effective regulation and creating independent regulatory institutions, otherwise it will be prone to serious market failures when in private hands. This seems to have been the case with rail privatization in the UK and in telecommunications in Mexico;
Privatization has been notably successful in telecommunications in Europe because genuine competition has arisen: the former state-owned enterprises lost their monopolies due to legislation and technological change, competitors entered the market, and prices for broadband access and telephone calls fell dramatically.
British Rail is an example of privatization program that has been deemed a failure. The track-owning company has been effectively repossessed by the British government, and many of the train-running companies are at risk of having their concession removed on the grounds that they fail to provide adequate services. In this case Stephen Byers (then Secretary of State for Transport) decided to call in administrators with regard to Railtrack (the infrastructure company created in 1993 and privatised in 1996) and transferring the infrastructure to the new Private Company Limited by Guarantee, Network Rail (a not for profit private company with no shareholders), Train Operation remains in the hands of private operators with franchises awarded by the Department for Transport (except for Merseyrail the franchise of which is awarded by Merseyside Passenger Transport Executive).
Alternatives to privatization
Municipalization
Transfering control of a nationalized business to municipal governement is an alternative sometimes proposed to privitization.
Sub-contracting
It is possible that national services may sub-contract or out-source functions to private enterprises. A notable example of this is in the United Kingdom, where many municipalities have contracted out their rubbish collection or administration of parking fines by tender to private companies.
In addition, the British government is debating the possibility of involving the private sector more in the workings of the NHS, principally by referring patients to private surgeries to ease the load on existing NHS human resources, and covering the cost of this.
Part ownership
An enterprise may be privatized, with a number of shares in the company being retained by the state.
Whilst partial privatization could be an alternative, it is more often a stepping stone to full privatization. Some state-owned companies are so large that there is the risk of sucking liquidity from the rest of the market, even in the most liquid marketplaces, and thus must be sold off bit by bit. The first tranche of a multi-step privatization would also in the first instance establish a valuation for the enterprise to mitigate complaints of under-pricing.
Notable privatizations
See also: List of privatizations
Privatization programmes have been undertaken in many countries across the world, falling into three major groups. The first is privatization programmes conducted by transition economies in Central and Eastern Europe after 1989 in the process of instituting a market economy. The second is privatization programmes carried out in developing countries under the influence of international financial institutions such as the World Bank and IMF. The third is privatization programmes carried out by developed country governments, the most comprehensive probably being those of New Zealand and the United Kingdom in the 1980s and 1990s.
Negative Popular Responses to Privatization
Privatization proposals in key public service sectors such as water and electricity are in many cases strongly opposed by opposition political parties and civil society groups. Opposition is usually strongest to water privatization – as well as Cochabamba (2000), recent examples include Ghana and Uruguay (2004). In the latter case a civil-society-initiated referendum banning water privatization was passed in October 2004.
Unindexed
Bel, Germà (2006), “The coining of `privatization´and Germany’s National Socialist Party”, Journal of Economic Perspectives 20(3), 187-194 Clarke, Thomas (ed.) (1994) “International Privatisation: Strategies and Practices” Berlin and New York: Walter de Gruyter, ISBN 3-11-013569-8 Clarke, Thomas and Pitelis, Christos (eds.) (1995) “The Political Economy of Privatization” London and New York: Routledge, ISBN 0-415-12705-X Juliet D’Souza, William L.
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| Economic Analysis of Everest Expeditions by Parashar Kulkarni |
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Parashar Kulkarni for The 2004 Moffatt Prize in EconomicsSince the decade of the 90s, liberalisation has been the guiding star for India’s policy framework. International financial institutions, consulting firms and government committees have pushed liberalization in India by advocating policy measures such as privatisation[1], disinvestment[2], commercialisation, deregulation and international integration. A review through the vast literature on the reform process takes us through the journey of India’s movement from a socialist closed economy to a pro market open economy. A broad summary of the liberalization agenda includes - steady reduction in the number of strategic[3] sectors (Presently there are three strategic sectors: defence, atomic energy and railway transport) and selling equity stakes in public sector units; - liberalization of financial markets and domestic and international integration; - decontrol of price regimes; - Promotion of pro market reforms and move towards a market economy.
An important and ongoing component of the reform process consists of privatisation and disinvestment. With the growth in libertarian though the government is increasingly cautious of its burgeoning size and unnecessary involvement in commercial activities. The government is changing its role in markets; from that of a participant to that of a regulator and in this process trying to attain several objectives such as efficiency, revenue generation, competition, and economic development. In certain situations few objectives contradict each other and have to be balanced.
In this essay we shall focus on the relation between two such contradicting objectives
Revenue Generation and Efficient market structure
Disinvestment plays an important role in revenue generation. Good disinvestment receipts can help the government reduce fiscal deficit not only by way of equity sale in PSUs but also for the subsequent cap in government transfers to bleeding PSUs. But has the government been successful in this context. Trends in the past few years have displayed wide and abysmal differences in disinvestment targets and actual receipts.
Political hurdles in disinvestment, intervention of stakeholders and interest groups as well as poor state of PSUs have all contributed to this performance.
Efficient Market Structure is also one of the important goals in the disinvestment/privatisation process. The government would seek to establish a competitive market which would result in driving down consumer prices (telecom sector privatisation in India) or it would try to maximize revenue by divesting in a pseudo monopoly environment and using regulation to control rent seeking behaviour (Reliance acquisition of IPCL) but it cannot try to maximize both revenue and market structure. The following case will explain the contradiction in the two objectives.
Consider the example of the Domestic Airline industry in India, an oligopoly dominated by three players: Jet, Sahara and Indian Airlines. Consider a hypothetical case of privatisation of Indian Airlines, the government owned airline company. How should the government privatise Indian Airlines? Should the government encourage more players by offering investment incentives and subsequently divest in a competitive market or should the government sell Indian Airlines to a third new entrant say Tata Airlines or should it permit a current player to buy Indian Airlines and increase the possibility of monopoly creation. Table 1.1. depicts the given situation objectively.
Table 1.1
Figure 1.1 explains the inverse relation between objectives of competitive market structure and revenue maximization. Competitive structure is plotted on Y axis and Disinvestment receipts on X axis
As the number of players in the market increase the value of the government entity to be divested decreases. Though a number of other variables effect price of government holdings, our interest lies in the inverse relationship of these two variables.
A deeper analysis is due on this relationship. Elements such as profitability, average PE ratios prevalent in that industry, growth rates, percentage ownership divested, market shares and several other factors have to be factored. The table below provides a rough idea of the relationship.
Table 1.2
Government Policy
How should the government balance it strategy in the light of the inverse relationship between market structure and disinvestment earnings.
The government can look at the following two complementary strategies to arrive at the solution 1) Different privatisation strategies on the basis of the nature of goods i.e. commercial, social, public utilities etc. E.g. To privatise markets for essential goods, the government should attempt to maximize social gain over monetary returns. Distribution systems for essential commodities can be an essential good where social gain needs to be prioritised. To privatise industrial markets the cash cow approach should be followed (Refer Boston Consulting Group Matrix). Efforts should be made to open markets, but sale of government sector companies should be timed between completely competitive and completely monopolized markets.
2) Withholding the sale, until the required market structure is created with the help of entry incentives. The following represents a widely accepted approach plan to disinvestments where the required market structure is created before sale.
Demonopolising/Permitting private entry
Developing incentive structure for private entry
Developing regulatory structure for adequate monitoring
Disinvestment
Solutions are not simple, especially where stakeholders are many and come from all sections of the society; workers, employees, management, equity holders and consumers. Further this essay looks only at a single variable i.e. market structure and its relationship with disinvestment receipts. Several other variables play more important roles in the scheme of disinvestment. The government should study international best practices, customize them to the Indian landscape and arrive at the right direction of the liberalization process. [1] Privatisation is defined as the exit of the government as a producer in a given market. [2] Disinvestment is defined as the reduction in government equity in public sector enterprises.. [3] Strategic sectors are those industries that are reserved for public sector enterprises. [4] This ratio reflects the premium at which the shares are sold. E.g. If selling price of a share is 100 rupees and face value (The face value of a share is usually the worth of a share at the time it was issued when the company was first formed) is 10 rupees, the share value / face value is 10. Higher the ratio, more is the premium received. This was an entry for The 2004 Moffatt Prize in Economics. See the contest rules for more information.If you’d like to leave comments about this entry, use the contest feedback form. Make sure to indicate that you are commenting on Parashar Kulkarni’s “Market Structure and Revenue Generation in the Disinvestment Process”.
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Arun Jaitley, the Union Minister for Disinvestment, is quite used to handling tricky problems. After all, he has been a lawyer and a spokesperson for the Bharatiya Janata Party (BJP). But nothing can beat the assignment that he has in his hands now–the disinvestment of 236 Central PSUs. Add to that the thankless job of extricating the government from all the sundry businesses. In an exclusive interview with BT’s Seetha, the normally-forthright Jaitley holds forth on the conceptual framework of disinvestment, but clams up on specifics.
Q. The government seems to be getting aggressive on public sector sell-offs…
A. I think sell-offs is a wrong phrase. Because the whole process is really intended to improving efficiency both in the concerned PSU, and also in the economy as a whole. Disinvestment is a process of revival. It’s a positive process. Sell-off is not a positive phrase.
Q. It’s still not clear what is driving the disinvestment programme. Is it the need to plug the deficit or a genuine belief that government should get out of certain businesses?
A. I don’t think plugging the deficit is a reason. The disinvestment proceeds are used for retiring public debt and for the social sector. A non-profitable business creates a budgetary deficit in the first place because you have to plough money into it to get it running.
We privatise to withdraw national resources locked in business, and substitute them with private investment. We privatise to make the economy more efficient. State-run industries, which have functioned in a protected, regulated, and, at times, monopoly environment, find it difficult to respond to the needs of the market. We want our former state enterprises to attract new capital, and modern technologies. We privatise to eliminate bureaucratic attitudes and allow entrepreneurial talents to emerge. We privatise to enable sick companies to turn around and hence save jobs. We also want to distribute the holdings of state enterprises among the people.
Q. There’s still a lot of confusion around the disinvestment process. Companies are identified for disinvestment, and then withdrawn.
A. I don’t think there is any confusion. Deferment is also for commercial reasons, not political reasons. For instance, we may look at the market at a particular time and find that the market is a little low for a particular share. That may not be the best time to disinvest.
Q. Are all cases of deferment devoid of politics? What about cases like Rashtriya Ispat Nigam and Indian Oil Corporation (IOC)?
A. IOC was a case in point where one of the reasons for holding back the 10 per cent flotation was the market condition. And certainly disinvestment is also a political exercise. You need a larger consensus and therefore you need consultation both inter departmental, as well as between the Centre and the state governments. Sometimes alternative viewpoints may not be about disinvestment but about modalities and timings. Ultimately it is the Cabinet Committee on Disinvestment (CCD) or the Cabinet which is the best judge.
Q. But there are several cases which have been cleared by the Cabinet but nothing much is happening.
A. Once there is a shift in emphasis to strategic sales–the process gets a little long. But it’s not fair to say nothing is happening. Global advisors have been appointed in some cases, in other cases they are being appointed, and in some cases the shareholders’ agreement is being finalised.
Q. You have been talking about a road-map for disinvestment. What is happening on that front?
A. I have been talking about a road-map for each PSU. This really means that you first determine the eventual destination of the PSU. We ask ourselves the following questions: Is it a strategic area that we don’t privatise? Even if it is not a strategic area, is it an area where governmental presence is required as a countervailing force to private sector monopoly? Is it an area where the government can safely withdraw as there are already a large number of private players? How much of it should you give to a strategic partner and how much to employees and the stockmarket? Is it an area where we hold on to shareholding for a reasonable time, watch the performance of a strategic partner before deciding the fate of the residual holding? Or is it an area where we must not go in for a strategic partner but disperse the shareholding, and see to it that there is a professional management in place.
Once you decide on the relative importance of a particular company in a sector and that’s the road-map, then you decide the process. This is quite different from just picking up five to ten per cent shares one year, and floating it in the market. All that must be part of a pattern, which in turn, must be dictated by the requirements of that sector.
Q. Has the government worked out a plan for the different sectors? There’s no clarity on that.
A. No. Consultations with regard to this are in progress. The March 1999 decision of the Cabinet is very clear that except three strategic areas–nuclear and atomic energy, armaments and railway transport–the government may, at a particular time, pull out of any other.
Q. Is the oil sector one of those areas where consultation is on?
A. Well, the CCD is yet to discuss that. The government is yet to take a final decision.
Q. Successive governments have faced criticism on the valuation of PSUs. How are you planning to address that?
A. Part of the criticism is because of a failure to understand the valuation methodology. Firstly, the values are dictated by the market, everything is sold by a transparent bidding process. In the earlier GDR issues, the prices were determined by a book-building method. Once the prices are determined by a bidding process, there is little scope for discretion. Secondly, there are well known methods of valuing shares, and there are established models worldwide. In order to make sure that the government reaches a value which is equal to or more than the share valuation, the government keeps those values secret after determining them. Thereafter if after the bidding process you reach a higher value then you sell. Otherwise you decide whether to hold it back or sell
Critics, without understanding these basic facts, start comparing values on the strength of valuation of immovable property. They don’t realise that you are not selling property, you are selling shares of a running business. Moreover, when you look at property values the important component is the land value. Now, a large part of the land is meant only for industrial use. People always confuse it with commercial or residential use. A bidder will take various factors into consideration, like what are the liabilities, the extent of overstaffing, the Voluntary Retirement Scheme (VRS) benefit that is payable, the kind of investment required to be pumped in for modernising the plant and increasing the capacity, and then how long will it take before the company can start earning profits, and eventually what is the anticipated profitability per share.
http://www.india-today.com/btoday/netexcl/netex2106/jaitley.htm
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 DISINVESTMENT POLICY |
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( I ) The Initial Phase The policy of the Government on disinvestment has evolved over a period and it can be briefly stated in the form of following policy statements made in the chronological order :
The policy, as enunciated by the Chandrashekhar Government, was to divest up to 20% of the Government equity in selected PSEs in favour of public sector institutional investors. The objective of the policy was stated to be to broad-base equity, improve management, enhance availability of resources for these PSEs and yield resources for the exchequer.
The Industrial Policy Statement of 24th July 1991 stated that the government would divest part of its holdings in selected PSEs, but did not place any cap on the extent of disinvestment. Nor did it restrict disinvestment in favour of any particular class of investors. The objective for disinvestment was stated to be to provide further market discipline to the performance of public enterprises.
In this pronouncement, the cap of 20% for disinvestment was reinstated and the eligible investors’ universe was again modified to consist of mutual funds and investment institutions in the public sector and the workers in these firms. The objectives too were modified, the modified objectives being: “to raise resources, encourage wider public participation and promote greater accountability”.
The Rangarajan Committee recommendations emphasised the need for substantial disinvestment. It stated that the percentage of equity to be divested could be up to 49% for industries explicitly reserved for the public sector. It recommended that in exceptional cases, such as the enterprises which had a dominant market share or where separate identity had to be maintained for strategic reasons, the target public ownership level could be kept at 26%, that is, disinvestment could take place to the extent of 74%. In all other cases, it recommended 100% divestment of Government stake. Holding of 51% or more equity by the Government was recommended only for 6 Schedule industries, namely:
The highlights of the policy formulated by the United Front Government were, as follows:
No disinvestment objective was, however, mentioned in the policy statement.
Pursuant to the above policy of the United Front Government, a Disinvestment Commission was formed in 1996. It made recommendations on 58 PSEs. The recommendations indicated a shift from public offerings to strategic / trade sales, with transfer of management, as the following table shows :
( II ) The Second Phase Budget Speech: 1998-99 In its first budgetary pronouncement, the new Government decided to bring down Government shareholding in the PSUs to 26% in the generality of cases, (thus facilitating ownership changes, as was recommended by the Disinvestment Commission). It however, stated that the Government would retain majority holdings in PSEs involving strategic considerations and that the interests of the workers would be protected in all cases.
On 16th March 1999, the Government classified the Public Sector Enterprises into strategic and non-strategic areas for the purpose of disinvestment. It was decided that the Strategic Public Sector Enterprises would be those in the areas of :
All other Public Sector Enterprises were to be considered non-strategic. For the non-strategic Public Sector Enterprises, it was decided that the reduction of Government stake to 26% would not be automatic and the manner and pace of doing so would be worked out on a case-to-case basis. A decision in regard to the percentage of disinvestment i.e., Government stake going down to less than 51% or to 26%, would be taken on the following considerations:
The highlights of the policy for the year 2000 – 01 were that for the first time the Government made the statement that it was prepared to reduce its stake in the non-strategic PSEs even below 26% if necessary, that there would be increasing emphasis on strategic sales and that the entire proceeds from disinvestment / privatisation would be deployed in social sector, restructuring of PSEs and retirement of public debt. The main elements of the policy were reiterated as follows:
“The public sector has played a vital role in the development of our economy. However, the nature of this role cannot remain frozen to what it was conceived fifty years ago – a time when the technological landscape, and the national and international economic environment were so very different. The private sector in India has come of age, contributing substantially to our nation-building process. Therefore, both the public sector and private sector need to be viewed as mutually complementary parts of the national sector. The private sector must assume greater public responsibilities just as the public sector needs to focus more on achieving results in a highly competitive market. While some public enterprises are making profits, quite a few have accumulated huge losses. With public finances under intense pressure, Governments are just not able to sustain them much longer. Accordingly, the Centre as well as several State Governments are compelled to embark on a programme of disinvestment. The Governments’ approach to PSUs has a three-fold objective: revival of potentially viable enterprises; closing down of those PSUs that cannot be revived; and bringing down Government equity in non-strategic PSUs to 26 percent or lower. Interests of workers will be fully protected through attractive VRS and other measures. This programme has already achieved some initial successes. The Government has decided to disinvest a substantial part of its equity in enterprises such as Indian Airlines, Air India, ITDC, IPCL, VSNL, CMC, BALCO, Hindustan Zinc, and Maruti Udyog. Where necessary, strategic partners would be selected through a transparent process”.
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To carefully examine the public sector non-core strategic areas; 
Restructure and revive potentially viable PSUs;Mainstream, Vol XLVII, No 2, January 24, 2009
Getting to the Roots of Global Terror
by Gilbert Sebastian, 26 January 2009
The Mumbai terror strikes on November 26, 2008 and a number of other terror attacks in the Indian cities have shocked our conscience and our sensibilities. The strikes on locations of the rich and powerful like the Taj and Trident hotels in the metropolis have woken up the Indian security establishment, something which did not happen when bombs exploded in busy marketplaces and railway stations. The visual media revealed its class bias by paying little attention to the first terror strike in Mumbai this time leaving 30 persons dead on the spot at the Chhatrapati Shivaji Terminus (CST) railway station.
Rather than analysing the root causes of terrorism, the visual media in particular has been indulging in anti-Pak jingoism and politician-bashing for security lapses. The police and armed forces have been painted in larger-than-life images. The stereotyping and stigmatising of the Muslims has also proceeded apace. The paranoia about security and intolerant attitudes have reached unprecedented heights. One would well wonder if we are going to have a paranoid society in the near future.
There are many politicians as well as middle class persons who believe that the fight against terrorism has to be in the US/Israeli way. The fact of the matter remains that the US and Israel have not been able to solve their own security problems even after several decades of following a security-centric approach. The floor managers in the UPA Government were quick to capitalise on the Mumbai attack by promptly passing the Unlawful Activities (Prevention) Amendment Bill, 2008, which clearly signalled a going back on the promise that civil liberties would not be curtailed in the fight against terror.
Of our Comrade Country in the Anti-colonial Struggle
WAR-MONGERS on the Indian side such as the Shiv Sena supremo, Bal Thackeray, propose to deal a crushing defeat to Pakistan for supporting terrorist outfits through the Inter-Services Intelligence (ISI). The civilian government in Pakistan, however, is still struggling with the military to wrest control over the ISI. Listen to Arun Shourie, our erstwhile Disinvestment Minister, who personifies the confluence of neo-liberalism and Hindutva:
… no war is won with minimal force. It is won by overwhelming the enemy. Not an eye-for-an-eye, not a tooth-for-a-tooth. For an eye, both eyes! For a tooth, the whole jaw!
Given the fact that both the countries are nuclear powers, the dangers underlying such war cries should be obvious. In fact, with the nuclearisation of South Asia, initiated by India in the first place, New Delhi has lost out its conventional military superiority over Islamabad. The presence of terrorist outfits that would fight against India is an added factor in future wars with Pakistan. It is said that even a full-fledged conventional war could take the country back by 50 years. Remember the conditions prevalent in India in 1958! Unfortunately, our historical memories do not extend beyond our violent communal partition. Should we not also recall that the peoples of India and Pakistan have fought shoulder to shoulder against colonialism and that Muhammed Iqbal, the national poet of Pakistan, had composed our patriotic song, ‘Saare jahaan se achha, Hindusitan hamaara …’?
Shall we Agree on what is Terrorism?
THERE was no consensus in the UN on the definition of terrorism nor on which organisations are terrorist, possibly because certain states wanted to de-legitimise militancy based on genuine political assertions of rights. But it would not be inappropriate to designate the indiscriminate act of killing of innocent civilians as terrorism. The purpose, of course, is to wreak revenge and to draw attention to the demands of some aggrieved section. Terrorist acts are fallouts of a deep sense of alienation of a section or sections of people. That the terrorists are treading a completely misguided path should be amply clear: a bomb in the marketplace can kill both the saint and the sinner.
Sources of Communal Ideology
WE need to begin from the premise that common people from all religious backgrounds are peace-loving. The communal ideologies owe their origins to the dominant classes whether from the colonial policy of divide and rule or from communal politicians of different shades. Remember the call for ‘Direct Action’ and the ‘Hindi-Hindu-Hindustan …’ slogan of the partition days. Who did these come from?
Terror from the Other End
THE Malegaon episode showed that there is nothing community-specific about terrorism as such. It refuted the dictum: ‘All Muslims are not terrorists but all terrorists are Muslims.’ No one really knows who is responsible for the recent bombings of many of the civilian targets in India because hardly anyone has been indicted so far. The bomb blasts at Muslim-majority locations at Malegoan and several other towns in Maharashtra and in Ahmedabad, the unexploded bombs at Surat, the Mecca Masjid blast in Hyderabad, the blast in Samjhauta Express, plausibly the powerful bomb blasts in Guwahati etc. could have been the handiwork of Hindutva terrorists. There are people alleging a Hindutva-Zionist nexus in carrying out such attacks. There have also been allegations of the cynical operations of shady state agencies like the Research and Analysis Wing (RAW—the Indian counterpart of the notorious ISI of Pakistan) in inciting the Kuki-Naga conflict, carrying out bomb blasts in Pakistan etc. If the case of Sarabjit Singh was one of mistaken identity, who then carried out these sinister operations? The alleged fake encounter at Jamia Nagar in Delhi recently, the fake encounters allegedly carried out by the Gujarat security establishment under Narendra Modi showed that there are also conspiracies hatched by the state and the dominant social forces to get the desired political impact. There have also been international parallels to this phenomenon: it is now widely believed that the burning of the German parliament, Reichstag, was carried out by the Nazis. The Pearl Harbour bombing in 1941 and plausibly the 9/11/2001 attack on the World Trade Centre in the US were allowed to happen in spite of clear knowledge by the state.
Three Hated Targets of International Terror
HOW did it all begin? When did the phenomenon of international terrorism start? Although there were Al-Qaeda bombings before, 9/11/2001 is put as the watershed by many analysts.
The US, Israel and India are the prime targets of the Islamist terrorists. What could have been the plausible reasons? Antagonism to the US and its allies could have been owing to the long suffering of the Palestinians, the US dominance over the oil-rich region of West Asia and more recently the US attacks on the Muslim-majority countries of Afghanistan and Iraq. Antagonism to Israel could be for inflicting untold sufferings on their Arab Muslim brethren in Palestine and for acting as the prop of the US in Muslim-dominated West Asia. And antagonism to India could be for the sufferings in Kashmir, ‘the paradise on earth now stinking of charred human flesh’, and, of course, for our violent track-record against the Muslim minority. India’s strategic alliance with the US and Israel, especially as a junior partner of the US in South Asia, is definitely a cause of disaffection. George Bush’s ‘doctrine of zero tolerance for terrorism’ had already lent a new idiom of politics to the dominant classes in India. Although Russia and China have also been under fire over the suppression of the self-determination movements of Muslim-majority nationalities in Chechnya and Xinjiang, respectively, it is the US and its allies, Israel and India, that are the most hated powers in the Muslim world. A collision course with a vast and sprawling Islamic world does not bode well for the future of India even from a strategic point of view. It may be borne in mind that at the world level the Hindu community, a heterogeneous category as they are, constitutes a minority vis-à-vis Muslim or Christian communities.
Allah as Justice
THE cultural dimensions of the conflict and the contours of the process of identity formation are important but not without their bases in the political economy. Consider the exhortation in the Hadith: “Slay the infidel, when he attacks you and will not let you practise your religion.” This may explain to some extent why Muslims protested so vehemently against the demolition of the Babri Masjid. Narai taqdeer, Allahu Akbar (Do not be afraid, Allah is great) is a powerfully motivating slogan most often used in the mass protests in Kashmir. If God in Christianity is love, Allah in Islam is justice. It cannot be overlooked that Prophet Muhammed himself was a militant for the cause of justice. No wonder Islam, even today, motivates people to rebel against injustices. No doubt, the reactions of the Islamist terrorist groups like the Al-Qaeda and Lashkar are highly disoriented and abominable but the context of these reactions cannot be missed out. As the world renowned Islamic Madrasas Association at Deoband in Uttar Pradesh ruled on February 25, 2008, the terrorist reaction is un-Islamic to the core and there are explicit injunctions in the Koran against killing innocent civilians.
Did they also ask for Something?
IN a talk on terrorism, the retired Professor from Delhi University, J.P.S. Uberoi, was insistent that one must look into the demands of the terrorist/militant organisations. Well before the 9/11/2001 attack, the demands of the Al-Qaeda were already broadcast on the BBC in 1998; so was the Peshawar conference of the Al-Qaeda covered in the news. The following demands of the Al-Qaeda are worth recalling: (1) holy places of Muslims should not have military presence; (2) there should be no sanctions against Iraq; (3) the United States’ support for non-democratic Muslim governments should stop. The United States maintained that these demands were ‘motivated’ and President George W. Bush pledged not to have any negotiations with the terrorists. He asserted that they had to be ‘hunted down and brought to justice’. Even the Khalistani militants in Punjab had their demands which included that agricultural prices should not be fixed so low.
Dealing with ‘the Other’ Within
M.S. GOLWALKAR, the ‘Guruji’ (master) of Rashtriya Swayamsevak Sangh (RSS), in his book, We or Our Nationhood Defined, had written about the approach the ‘Hindu Rashtra’ should adopt towards its religious minorities: There are only two courses open to the foreign elements, either to merge themselves in the national race and adopt its culture, or to live at its mercy so long as the national race may allow them to do so and to quit the country at the sweet will of the national race.
Again, he says the minorities
must cease to be foreigners or may stay in the country wholly subordinated to the Hindu nation claiming nothing, deserving no privileges, far less any preferential treatment, not even citizens’ rights.
“There is,” he says, “at least should be, no other course for them to adopt.”
Even if Golwalkar’s proposal is accepted, it is well-nigh impossible to crush a huge minority of 12.4 per cent Muslims in India as of 2001. In Hitler’s Germany, Jews were only around one per cent; so it was much easier to subjugate them. Even the Christian minority in India today is 2.3 per cent as per the 2001 Census. Attempts to forcibly subjugate these communities can only lead to the tearing apart of the social fabric which would be detrimental to the interests of even the dominant social forces because in such a situation, a regime of unhindered accumulation cannot be sustained.
What Mothers have given Birth to the Terrorists?
DURING the Afghan war against Soviet occupation, it was the CIA that funded and supported Osama bin Laden and the Taliban. Even today, the ultra-conservative Saudi monarchy of the Wahabi ilk is actively backed by US imperialism because of its oil and geo-political interests in West Asia. Probably, the present Islamist Saudi regime qualifies as the case of Third World fascism but is hardly pulled up by the US and its allies for lack of democracy or violation of human rights. It has been pointed out that the Saudi regime’s funding to Wahabi missionaries finds way into the hands of the terrorists who fight in the name of jehad (holy war). It has been shown time and again in history that chauvinistic ideas, including communal ideas, gripping people’s minds can become a potent material force that can eventually threaten even the dominant class interests that had initially propped them up for their own narrow and selfish material interests. These are also reminiscent of the Bhasmaasur-Shiva episode in Hindu mythology. It is known that Bhindranwale, the Khalistani terrorist, was propped up by Indira Gandhi and eventually she herself fell victim to the Khalistanis. The Pakistani political elite, who had at times extended overt or covert support to the terrorist outfits, are themselves now at the receiving end of these ‘non-state actors’. Similarly, the US has not been able to control the militancy that it promoted against the Soviets with the militants now turning against them. Here the cultural processes of identity formation assume autonomy from their material bases.
Getting to the Roots
IT is apparent that neo-liberal globalisation has been accompanied by the rise of fascistic communalism in our country. Communal divisions preclude the possibility of a united fight by the majority and minority communities against neo-liberal globalisation akin to the anti-colonial revolt of 1857 which was fought unitedly by the Hindus and Muslims. On this count, the Ram Janmabhoomi movement since the mid-1980s had prepared the ground for the aggressive self-expansion of oligopolist capital. The political sustainability of neo-liberal reforms was ensured by the rise of Hindutva communalism and the minority communalism that arose was mostly a reaction to it.
The dominant discourse in India on tackling terrorism has been a security-centric one in which one hardly finds a way out from the unending and vicious kaarmik cycle of action and reaction. The paranoia about security gives rise to a spiral of violence. It is a violence that begets violence—it is not the violence exercised in a Ceasarian section to give birth to a baby. It has no long-term vision or sense of direction and is based on a communally jaundiced view of meeting pragmatic targets. Whether the dominant classes are obsessed with short-term gains in pursuing such ad-hocism in policy and/or sections of them are deluded by their own ideology is a matter to be investigated. Security, however, can be understood in a broader sense as ‘human security’ as related to the insecurities arising out of the impact and repercussions of neo-liberal globalisation and especially the military globalisation of today.
The roots of the deep sense of alienation and victim mindset among Muslims in India go back to the many communal riots that have shamed our country in the past and the impunity enjoyed by the perpetrators. However, speaking of the root cause of terrorism in India, the demolition of the Babri Masjid in late 1992 and the riots that followed, the gross atrocities by the Indian security forces in Kashmir since 1990 and the Gujarat carnage of early 2002 (whose perpetrators are still at large), have been landmarks in the history of Islamist terrorism in India as were ‘Operation Bluestar’ and the anti-Sikh riots (both in 1984) in the history of the Khalistani movement. Dr Riaz Ahmed of the Delhi University rightly says that terrorism is the ‘desperate reaction of a desperate people’. Terrorists are crying for attention towards issues like the gross violations of collective human rights in Kashmir and justice to the victims of the carnage in Gujarat.
Kashmir has had an ardently secular Sufi past, it opposed the communal two-nation theory during the Indo-Pak partition in 1947 and the demand of the Jammu and Kashmir Liberation Front (JKLF) was for a secular, democratic republic of Jammu, Kashmir, Ladakh and the Pak-ruled Gilgit. It is after the suppression of the JKLF that the Hizbul Mujahideen, a moderately communal militant group, arose. The origin of the communal, terrorist and pro-Pakistani outfits of Kashmir today, namely, Lashkar-e-Taiba, Harkat-ul-Mujahideen and Jaish-e-Muhammed owes a lot to the brutal suppression by the Indian state of the self-determination movement in Kashmir, costing around 80,000 Kashmiri lives as also to the sinister support extended to these outfits by the ISI from the Pakistani side. The travails of the near and dear ones of around 10,000 persons who have gone missing constitute the most poignant part of the Kashmir story. The fact that public debates in the rest of India on the gross atrocities by the Indian security forces in Kashmir have been few and far between casts a reflection on the democratic credentials of our public sphere. In the mainstream anti-terrorist rhetoric, the phenomenon of state terror is conveniently overlooked. The existence of the draconian Armed Forces (Special Powers) Act, 1958 in Kashmir and the North-East of India clearly indicates that the peoples of these regions are treated by the Indian state as ‘incomplete citizens’.
So far, suggestions to address the root cause of terrorism have often come not from the mainstream Indian media but from external sources such as the governments of China or Pakistan. The anti-Pak jingoism in the visual media today is reminiscent of the malevolent role of the Bombay media in pushing us to the brink of a disastrous border war with China in 1962.
The crushing of terrorism in Punjab by sheer military means—as testified by the records of cremation of 2097 bodies, many of them at Tarn Taran in the early 1990s—was possible because the militant movement had lost its mass base owing to the much-hated tactics such as bombing civilian targets. People who are optimistic that since there is no trace of terrorism in Punjab today, a militaristic approach to the issue can be adopted even in the Kashmir case, may be grossly wrong. The Punjab militancy lasted for less than a decade since 1984 but the Kashmir militancy has lasted nearly two decades now since 1988 and the cause still enjoys popular support in the Valley despite all the Machiavellian tactics hatched by our strategic analysts. Sikhs have been a micro-minority at the global level which is far from the case with the Muslims. The communalisation of the cause of Kashmiriyat only signalled its merger into the potent pan-Islamic identity and by no means a weakening of this cause.
It is high time we stress on a political solution instead of a military solution. We are in a state of permanent ad-hocism. A durable, lasting solution is still out of sight. Are the results of the recent Assembly elections in four States an indicator that the ill-fed, ill-clad, illiterate masses of India—over three-fourths of whom subsist on less than 20 rupees a day, according to the Arjun Sengupta Committee report—are becoming politically mature enough to reject a cynically communal and a narrowly security-centric anti-terrorist agenda that does not address their basic needs? Yes, the fundamental choice is still with the Indian state and the dominant social forces whether to root out terror by addressing its deep-seated causes or keep chipping away at its branches for all times to come.
[The author thanks Dr Prashant Trivedi and Dr Riaz Ahmed for their comments. The views expressed above are only personal.]
Dr Gilbert Sebastian works as an Associate Fellow at the Council for Social Development, New Delhi. He can be contacted at gilbert_sebs@yahoo.co.in
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