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The Evil of Government Control

No investor would like to own shares in a PSU like Air India if it's still being run by the same dispensation

One of the many laments against Pranab Mukherjee's budget has been how it doesn't lay down any time table for government divestment of its holdings in the public sector undertakings (PSUs). However, there is a far bigger problem with the divestment process.

Few things symbolise the degeneration of the reforms process in India more than the way the debate on divestment has shifted from improving the PSUs to just making money from selling some shares in it.

Once upon a time, the primary logic of divestment was that the government should not be doing business. This has been forgotten. Now, the thought process has been debased to that of any unscrupulous promoter. They've got these shares that can probably be flogged off at a high price when the markets are booming. So they'd like to sell 49 per cent and get some money that they need for other activities, while still retaining enough stake to run the companies as they please.

Mr. Mukherjee said in his budget speech, "PSUs are the wealth of the nation, and part of this wealth should rest in the hands of the people. While retaining at least 51 per cent government equity in our enterprises, I propose to encourage people's participation in our disinvestment programme."

Here's what he actually meant: "The PSU are the wealth of the nation, and those of us who run the nation -- both politicians and bureaucrats -- find it extremely convenient to keep this wealth firmly under our control so that we can do whatever we want with it.

However, since we have squandered so much of this wealth, we now need to somehow get some money from the public to top it up."

The world over, the economic crisis is being used to paint all private enterprise in a bad light. Politicians are vowing never to sell off the public sector and this is being accepted without a murmur. Let's be clear about one thing. Nothing will be achieved by selling 49 per cent of in PSUs. Government-run businesses have done well only when they have implicit or explicit monopolies. And unlike private businesses, they have the tax-payers on the hook when they do badly. If Kingfisher or Go Air sink, then that isn't anyone's problem. But Air India is a public black hole which will keep sucking up funds that could have been used for the things government is really supposed to do. Actually, even Kingfisher, with its thousands of crores of loans from government banks could be a public black hole.

But that just changes the topic to crony capitalism, which is yet another evil of government control.

Would you like to own 49 per cent of Air India if it's still being run by the same dispensation that has been doing it for so long? No, of course not, no one will. Air India shares would be non-sellable. Only the ones that have some source of tenured profit are sellable, as we have seen in the public offers of ONGC and NTPC.

The divestment process is now entirely a financial exercise aimed at selling assets to raise money to help the government's budgeting. There is not even any pretense that this is linked to improving the functioning of the public sector in any way.

What this means is that this current version of divestment is not really an improvement in any way. Going through with it may impact the government's revenues, but it won't be an economic reform.