In our extortionist babu-neta raj, privatisation is the only way to
empower the public sector and unlock its enormous value. All previous
attempts at reforms have failed-holding companies in the 1970s, Memoranda
of Understanding (MOU) in the 1980s and disinvestment in the 1990s.

The initial breakthrough came in August 1996 when the United Front government
established the Disinvestment Commission under the chairmanship of G.V.
Ramakrishna. The Commission lasted three years and it prepared detailed
recipes for the future of 58 public sector companies. Its most important
contribution was to propagate the idea of “strategic sales”, in which
a substantial chunk of equity in a public sector company would be sold
to a single investor who would also take over management control. In
February 1997, the UF government acted on the Commission’s recommendations
on four companies. A couple of loss-making plants of the Cement Corporation
of India were sold off. Privatisation proceedings for Lagan Jute Machinery
Company were also launched. An exercise to privatise Maruti was also
initiated but that got scuttled.

Thus, Arun Shourie had something tangible to build on. However, he has
gone much beyond the Ramakrishna recipes. His tenacious perseverance
and personal integrity has carried the day and saved privatisation from
being hijacked by buccaneers. The nation now eagerly awaits Shourie’s
ministerial memoirs in which he will probably reveal all-how a former
minister tried to abuse his position in the Cabinet to get access to
privileged information for his cronies in a hotel transaction, how a
key NDA ally tried to lay claim to a part of the Maruti sell-off proceeds,
how the IPCL sale was subject to different types of pressures and generally
how MPs are willing proxies in corporate wars.

Can Shourie be faulted? Yes, constructively on four counts. First, privatisation
is not bringing in foreign investment. Sure, selling public sector companies
to Indians will evoke less hostility than if they were to acquired by
foreigners. But it is a missed economic opportunity and a lost chance
for enhancing political leverage globally. Second, he is selling of
cash-rich, well-performing companies with great alacrity. There has
to be a better mix and sequencing. Third, the privatisations have boosted
the centre’s coffers by about Rs 10,000 crore. These could well have
been used for designated, high-visibility projects in say, education
and health or for creating infrastructure in 100 of the poorest districts
thereby establishing a direct link between privatisation and social
needs. This has not happened. Fourth, private companies have a special
responsibility to ensure that the “public” dimension of the public enterprises
they are taking over is not dismantled. This is something on which Shourie
has remained silent.

The public sector still has a crucial role particularly in strategic
areas. But a different type of role, more like that of a venture capitalist
who starts projects, gets out and moves on. That way, the comparative
advantage of the public sector in getting projects off the ground can
be leveraged and married with the comparative advantage of the private
sector to manage projects.