bad economics Reforms

Go easy with the family silver

Among other mistakes that the BJP made in 2004, their sale of public sector assets to a handful of private companies was a prize plunder blunder, says Siddharth Varadarajan. But whether or not there was collusion between the NDA and the sale of units such as Modern Foods, BALCO and so on, in the public mind these amounted to little more than sweetheart deals. The real value of many underlying assets of these companies (take land, for one) was never realised and the rationale for privatisation wasn’t very convincing either, Varadarajan argues.

In the run-up to the budget, the markets had worked themselves up into a frenzy because the re-election of the Congress and the formation of UPA-II without Left support seemed to suggest the return of aggressive reforms. When the budget failed to deliver the opportunities for quick enrichment that ‘reformers’ were clamouring for, the markets tanked. However, it would be a mistake to assume that the privatisation agenda has gone away. In their post-budget statements, Prime Minister Manmohan Singh and Finance Minister Pranab Mukherjee have both spoken of the importance of disinvestment. One can only assume the government is waiting for a more propitious moment, both politically and financially, before rolling out its sell-off plan.

Before going down this route, however, it is essential that the case for privatisation be discussed anew from first principles. And that this discussion be conducted rationally, without the free market dogma and leftist sentimentality that has tended to cloud the real picture.

Broadly speaking, one needs to ask four questions. First, is public ownership of industry inherently inferior to private? Second, is private ownership the only way to deal with managerial inefficiency? Third, is there a difference in the positive and negative outcomes produced by privatisation through the strategic sale route and through the sale of shares to the public? Fourth, is plugging the fiscal deficit a sound rationale for disinvestment?

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