A time to disinvest?

Rupee has been in a free fall for quite some time now and the government and RBI reaction to the daily price movement is far more frustrating than the Rupee fall itself.

From banning TV imports to squeezing out liquidity – the authorities have not taken a single step to address the structural problems that exist in the economy.

The stock market is also in a free fall since the past few days, and disinvestment is the last thing on anyone’s mind right now. Like most other things, disinvestment has been a total failure in the past few years not just for the money it raised but also because of the nature of divestments that the government has done so far.

Because of the deficit situation the focus on disinvestment has become getting the most money out of share sales, and somehow privatization has been completely forgotten.

If you look at the coal situation, and not even think about Coalgate, even then the whole environment is completely ridiculous.You have a monopoly in Coal India that is the world’s largest producer of coal but the demand is such that India imports massive amounts of coal and these imports have grown this year draining the forex reserves. Why should there be a government monopoly in coal production, and would there ever be a good time to disinvest? Isn’t it better to let private players take charge and have many companies operating in this important sector?

Perhaps the government is not ready to disinvest or privatize big stakes in companies like Coal India but what about companies like Scooters India? Why does the government need to be involved in manufacturing three wheelers and isn’t it better privatize such companies to raise cash instead of creating funds to help sick PSU – it’s not like the government is flush with cash anyway.

No one wants to talk about disinvestment or privatization right now, but a few steps in the direction of privatization and showing that the government is getting out of business will send positive signals, and will be better than increasing import duties on televisions.

8 thoughts on “A time to disinvest?”

  1. The restrictive and populist measures are pulling indian economy now. Government gives so many advertisement to show their achievements (really giving ads of their party), can’t they give advertisement on how people can be self reliant – how people can set up industries, what kind of help can government/banks give, what training programs are on offer etc. India also needs to improve productivity – hiring more people to do the same job for meager wages is a bad idea. We need to promote tools – even simple tools for construction or moving packages will help instead of laborers picking load on heads. Some of these measures may seem symbolic but walk in the right direction can ultimately reach to right destination.

  2. There is a big difference the way UPA government is doing disinvestment and the way NDA did it. NDA did it the right way by selling control of the sold PSUs and also inviting bids by the private interested parties and then selling it to the highest bidder or the most qualified buyer. The price they got this way was much higher than the prevailing market price and the basic purpose of value addition to the economy was also getting fulfilled.

    The way UPA is doing it looks like it is selling its Navratnas or Maharatnas or Mini-ratnas for peanuts, just to show-off their reformist moves. Then whatever money they are getting is again getting wasted in their unproductive works, like running parliament without doing any work or giving 10-15 full/half page ads on Late Mr. Rajiv Gandhi’s 69th Birthday or giving subsidized cereals at Rs. 2-3 per kg.

  3. These are good ideas, but the present government has just been a socialist one in the garb of a reformer government. The privatisation of PSUs will never happen under this government. The “disinvestments” that have been happening with the PSU has just been an eye-wash to temporarily prop-up the fiscal deficit situation, without yielding any management control or the way these PSUs work. And that is why all the PSUs are quoting at much lower prices than their IPO/FPO prices.

    1. Absolutely, they had modest targets which they weren’t able to achieve and of course you don’t even have to mention how many stakes LIC had to pick up.

  4. I think about an year back or so, there was some plan for disinvestment, but the market levels were too low as per Government (again shows their greed). Now probably, those market levels are high in hindsight!.

    As far as rupee is concerned, I think besides Dollar strengthening, there are definite domestic macro concerns, which have heightened in recent month. Government’s lack of efforts/governance (and then sudden panic moves like FDI) and RBI ‘s zig zag turns (monetary easing, then tightening and then loosening again) have sent confusing signals to markets, creating panic sell off for rupee. Having said that in general, currencies of countries with high trade deficit have been hammered. The confused policy moves have been icing on the cakes for us.

    1. Yeah, I think the goal for disinvestment should move away from revenue maximization to allowing private players get involved in business and create competition and reduce red tape.

    1. Getting FDI should be the top priority and anything they can do to get that done will go a long way. If they sit with IKEA and understand their concerns and design policies accordingly that will be great.

      Can they help Lakshmi Mittal make investments in India or help Anil Agarwal with land acquisition?

      Environmental clearances for projects has been a big problem and so has been land acquisition so any steps in that direction will be helpful.

      Any sector that they can open up and free from regulation will surely benefit.

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