The Balco sale and its aftermath

By C. R. L. Narasimhan

The Balco imbroglio is a setback not just to the disinvestment process but to the process of government decision making in a democracy. For a sale decision that appeared clear cut when first announced the subsequent developments are nothing short of a tragedy. Not that the opposition to the strategic sale was unanticipated but the extent to which political posturing can raise the stakes is something on which no one could have had an inkling. Much has been said about Mr. Ajit Jogi's stance. His accusations of corruption (as well as his failure to back them up) are all familiar. Indeed even if politicians do not make those charges others will.

It is a sad commentary of the times we live in but any major decision of the Government (and by extension the public sector) is automatically suspect. It apparently matters very little that the policies governing specific decision making have had wide political support to begin with. But as has been shown by the Balco episode, the much touted political consensus simply breaks down over such unanticipated matters as lack of communication between the Centre and the Chief Minister of a new State. Worse, far from being a Balco specific issue, the opposition to disinvestment or privatisation (as it is called prematurely) is getting institutionalised. Note how the Congress Party at its Bangalore plenary set the clock back as it were.

Opting for a mixed economy, the party has opposed selling more than 49 per cent Government stake in any profit making public sector enterprise. Which means that the particular company will remain a Government company. Why should the outside shareholders, including several individual shareholders, continue to suffer low valuations is a question no one wants to address.

Market can be a guide

The market mechanism may not be the most appropriate one to decide on macro policies. Yet, programmes such as divestment are ultimately to be tested on the stock exchanges. Again going back to Balco, it is obvious that if its shares were listed on the exchanges there would have been another yardstick - the market quotations over a period - to guide the next sale. It would have been a valuable adjunct to the three accounting methods that were used to justify the price at which 51 per cent of Balco was eventually sold to Sterlite Industries.

Whatever be the other demerits of the stock market mechanism, it does throw more information on the company and to that extent it makes for more ``transparency'. The flipside to it is that politicians and sundry experts can question any PSE sale because the markets behave erratically. Our experience since 1991-92 suggests that a selective use of market quotes and a posterior judgement on any sale can be devastating to those who initiated the process.

Even before Balco, it was realised that no particular methodology of PSE sale would be immune to criticism. But surely no one expected its policy derailing consequences. The budgetary target for the disinvestment programme during the coming year (ending March 2002) is Rs. 12,000 crores. That is unlikely to be achieved. Difficult even in normal times, it looks insuperable now. More so because the candidates coming up for disinvestment include some really high profile ones such as VSNL and the two airlines, Air India and Indian Airlines. There will be at least two fatal consequences.

One, the valuations will naturally suffer. Many serious buyers may stay out of the final bidding, worried as they would be, about the absence of finality even after the transaction is completed. Already there are indications that there will not be enough suitors for Air India and that the Government may call for fresh bidding.

Even assuming that there is greater interest to buy Air India and the other high-profile PSEs, the price the Government gets will not be commensurate with what figure the critics will place on selling a piece of ''national treasures.''

Crippling decision making

Second, the decision making machinery has taken a blow and, no matter what happens next in Balco, is unlikely to be enthusiastic about subsequent sales. More so because from start to finish the disinvestment exercise will become even more controversial. Imagine the trauma a decision-maker has to undergo in pushing through, for instance, the high-profile sale of Maruti Udyog Ltd. Getting past the equal partner, Suzuki and then the Union Ministry of Heavy Industries, an appropriate method has to be devised and tested, its concurrence sought and, after incorporating all the changes, implemented at the most suitable time.

At each of those stages there will be controversy. If the policy framework is supportive, maybe the exercise will be worth it. But after Balco there can be no guarantee of a swift culmination. Balco's enduring legacy will be in the unexpected and extreme political posturing adopted after the transaction was completed. That in turn has dashed any hopes for a quick revival in disinvestment prospects. Or for that matter any other major economic decision making.

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