Neyveli Lignite Disinvestment

July 10, 2006

The mess of coalition politics is once again very evident. The DMK, a constituent of the ruling UPA (United Progressive Alliance) has threatened to pull out of the coalition if the government goes ahead with its plan for privatizing Neyveli Lignite. So the DMK's got the government by its unmentionables, and the Prime Minister has announced the decision to put all disinvestments on hold!

This may not be such a bad thing after all. Disinvestment and privatization in India has usually been ad-hoc, and does not seem to be based on a coherent strategy. That government should get out of business is a great and absolutely necessary idea. For instance, why is the government interested in lignite mining (with Neyveli)? But the way and pace in which this is done is pretty crucial. When workers get laid off, people lose livelihoods and social upheavals invariably occur. The controversies over profitable public sector companies having been sold for basement-bargain prices only fuels suspicion of who's actually benefiting from the sales.

Disinvestment is a very complex, strategically significant and economically necessary process. In any such process, common sense would dictate the following:
1. The objectives of the process should be clearly laid out. What is it that we could like to achieve at the end of it all? And this should not be just in terms of disinvestment targets.
2. What should our overall strategy be in order to implement the process in a way wherein we achieve those objectives? Standing on the pavement corner and selling all your assets to the highest bidder who walks in that day could be one strategy. Timing your asset sales in a way where you maximize your earnings could be another way. Sequencing them such that the impact on your employees, shareholders and other stakeholders is on the whole positive is another strategy.
3. What controls are in place, so that disinvestment is not a means for members on the disinvestment committee and other assorted politicians and bureaucrats to fatten their pockets is critical? Globally, disinvestment has been a heavily abused process and has resulted in very many people becoming rich. You have Russia as a striking example of all that can go wrong with privatization. Which is simply a cover for asset-stripping and mafia-control of the economy.

In 1991 when the whole process kick-started, Manmohan Singh and team had come out with a strategy white paper on disinvestment. Sadly, that remained only on paper. Successive governments never bothered to have a coherent strategy to the entire process. Absolutely no method to the madness. And even blunders such as the sale of the Centaur hotel have not forced the government (a different one this time) to relook at how it can be done better.

It was never going to be an easy process. But, shooting in the dark isn't helping anyone. Why, for instance, has Neyveli Lignite suddenly been chosen to be privatized? Doesn't it maybe hint that there is more to this than meets the eye. That maybe there are mining lobbies at work that influenced this particular decision, and almost got their way through?

On the other hand, the opposition to privatization is also largely based on vote bank politics rather than rational economic analyses. The DMK arose to the "evils" of privatization only when it threatened to strike home. The Left's opposition is sometimes ludicrously lame - recollect how the protests against airport privatization fizzled out.

In all this, the media once again portrays the interests of big business without trying to really explore the complex mass of underlying issues. The entire disinvestment issue is presented as a big business vs. worker rights issue. While that is indeed one aspect of the issue, there's usually a lot more, and the press never seems to get around to discussing threadbare all the issues involved. Now, "experts" are saying that this decision will negatively affect stock market sentiment. So why the hell should anyone care? We're guaranteed to be in a bubble economic phase whenever the stock market indices begin to influence economic policy decisions. In any case, the market's been acting inebriated since the past couple of months.

My prediction: when the right "incentives" have been shown to the decision makers at DMK, Neyveli Lignite will be sold off. Probably before the year is over. But then, I am a conspiracy theorist in any case! For an ongoing discussion hop over here. For interesting insights into flawed globalization read, Globalization and its discontents, by Joseph Stiglitz.

Intrepid is a Mumbai-based entrepreneur and runs an information security consulting firm. He blogs about entrepreneurship, venture capital, marketing ideas, taxation and legal issues at http://everydayentrepreneurs.blogspot.com
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