Search the Internet          Tips  Sites: Finance, Investment

States follow double standards on privatisation

BS Bureaus

At least two finance ministers-Yashwant Sinha and P Chidambaram-have complained about this phenomenon. State government frequently vociferously support-or oppose-drastic financial steps that the Centre proposes.

But in their states, they do the opposite. This naturally defeats the long and wearying struggle to reach political consensus on economic reform. Often two steps forward by the Centre means two steps back by the states.

Take privatisation. Even in a state which is as bullish about economic reform as Andhra Pradesh, there is curious ambivalence about privatisation. Andhra was one of the first state government to kick off a divestment programme (Allwyn Nissan, a state run PSU was given to the Mahindras, as early as 1989).

Since then the refrigerator division of the government-owned Hyderabad Allwyn Ltd was sold to Voltas (1994) and the Hindupur Sugars unit of Nizam Sugars Ltd privatised(1998). A committee suggested comprehensive divestment. A subcommittee of the Andhra Pradesh Cabinet accepted this and proposed divestment in 26 public sector enterprises. It is another matter that the state's finances did not permit funding of a VRS.

Nevertheless, the state government leveraged its successful privatisation programme to the World Bank in the late 1990s, and secured funding for the AP Economic Restructuring Project for which the Bank sanctioned $26 million, including a 10 per cent contingency grant to finance 70 per cent of a VRS package.

On the basis of this you would think the state government and the Telugu Desam Party which is in power, would support privatisation across the board-right?

Wrong. The TDP in Parliament has opposed tooth and nail the privatisation of the Visakhapatnam Steel Plant which employs around 10,000 people. The argument is: the Centre has not prepared people for privatisation in the way that the state government did.

Andhra Pradesh is not the only one. The Orissa government led by Naveen Patnaik's Biju Janata Dal is an ally of the National Democratic Alliance, and therefore, supports the Centre's belief that government should not be in the business of running factories, plants and manufacturing units.

And yet, the Orissa government and elements in the BJD are staunch opponents of any proposal to privatise any PSUs in Orissa -like Paradeep Phosphates Ltd.

Pravat Samantray, a member of the BJD, says he believes in "reforms with a human face". But he is opposed to the privatisation of PPL because the Centre hasn't given the unit enough time or scope for revival. Incidentally, PPL falls in Samantray's Assembly constituency.

The ruling BJP government in Gujarat is also committed to privatisation, especially in the roads sector.

But the party staunchly opposes privatisation of roads in the nearby Madhya Pradesh. Nayan Parikh, a leading infrastructure consultant who is also advisor for infrastructure development to the governments of Chhattisgarh and Madhya Pradesh said: "As the party in power, Gujarat is moving ahead with privatisation. However, as the party in opposition in Madhya Pradesh next door, similar programmes of privatisation mooted by the Congress government are meeting with stiff resistance."

The Left Front-led government of West Bengal has put its money where its mouth is. It is consistent in opposing privatisation of any unit, central or state. Instead, according to finance minister Asim Dasgupta, five-year programmes have been launched in 18 out of the 67 government undertakings in the state to reduce losses and nurse PSUs back to health.

But there is an exception. The state run Great Eastern Hotel was all set to be divested to the France-based Accor group because the government realised its energies could not be spent running a hotel.

The West Bengal government finalised the terms of divestment. However, trade union objections to the sale and the plans of the French company to make architectural changes in the historic structure that houses the hotel, led to the divestment falling through.

Kerala, where the CPI(M)-led Left Democratic Front was in power till recently and yielded ground to the Congress led United Democratic Front in the last election, views privatisation in a uniquely bipartisan manner.

Both the UDF and the LDF believe that there should be no privatisation if it can be avoided. This is despite the stated Congress position that if PSUs are not making profits, management control should be handed over to the private sector.

There has been no privatisation of any state-owned unit in Kerala. The countryside around Kochi, once the state's industrial capital, is littered with dying, loss-making state-owned factories.

Powered by

YOU MAY ALSO WANT TO READ:
The Rediff-Business Standard Special
The Budget 2001-2002 Special
Money
Business News

Tell us what you think of this report