Subir Roy: A feasible minimum programme

VALUE FOR MONEY

The Common Minimum Programme of the Congress-led government has not only made the stock markets crash but given a handle to sundry ministers to declare that there will be no privatisation in their respective backyards.

This reading of the programme suits the ministers and their bureaucrats splendidly as they see in it a handle to misuse and exploit the public sector units under them.

But the programme not only encourages disinvestments in some cases, it even allows privatisation under clearly defined boundaries. Thus the top political and executive leadership "" consisting of Sonia Gandhi, Manmohan Singh and P Chidambaram "" still have considerable room for manoeuvre.

They can and probably will come out with a host of measures which can revive sentiment and serve the cardinal goals of promoting rapid economic growth while ensuring that this touches the lives of ordinary people. Here are a few ways in which they can go about the task.

Since it is the stock market's shine which proved the most ephemeral, that would be a good place to begin. The Indian market starts to fall as soon as there is so much of a whisper that the foreign institutional investors are withdrawing a bit of their funds.

In this thin market domestic investors have or care to have very little clout. The retail investor in times of crisis becomes hard to spot.

The way to rectify this is to take steps to spread the equity cult, by encouraging both direct retail investment or through mutual funds. This is a longer-term solution and is not an antidote against panic induced crashes but in the long run there will still be an Indian market.

A good way to encourage the retail investor is to continue with disinvestment in healthy public sector concerns at a slight discount so as to allow those applying for IPOs to see some prospects of a capital gain.

Such disinvestment, which is not privatisation, can go on till the government shareholding approaches 50 per cent as the common programme clearly allows it. Left leaders may have good reason to bear a personal grudge against Arun Shourie but disinvestment was not invented by him.

There is no need to throw the baby out with the bath water. It needs recalling that privatisation, that is handing over management control to a private entity, had come to a standstill even during the last regime after a few instances.

Along with this it is necessary to look at the regulatory regime governing the market. Enormous strides have been taken to both remove systemic deficiencies and ensure that those operating in it do so by committing a certain amount of their own money.

Cash and speculative markets have also been separated to provide a separate platform for those who want to take a view of the future and put their money on it.

But the post election crash has indicated that operators' need to sell in a falling market to meet margin calls and inability to hedge in derivatives market have added to the downward spiral.

Any self-perpetuating spiral, particularly one prompted by systemic elements introduced in the first place to promote stability, is by definition counter-productive. What all this means is that the need to improve the structure of regulation is not over, despite the undoubted achievement that even such a severe crash did not result in a payments crisis.

Undoubtedly, better performing markets and a steady stream of public sector paper will revive sentiment in public sector shares and lift the overall market with it. But the market will still lack the ballast that it had received, via the premium on public sector shares, late last year because of the expectation that a resumption in privatisation could not be very far away.

That would probably have been the case if the NDA had returned to power but since the option is currently ruled out, the present government has to think up something which will boost sentiment in public sector paper.

This the government can do by putting in place a structure which enhances the autonomy of public sector units and empowers them with more professional managements. The common programme specifically calls for this.

A good way to begin would be to strengthen the Public Enterprises Selection Board and ensure that not only are top level public sector appointments made in time, the entire quality of top appointments is improved.

It can straightaway be announced that all appointments of chief executives will be made six months before the incumbent is due to retire and all such appointments should be for a minimum of two years.

There are also many simple ways in which the quality of top appointments can be improved. The government can begin by putting a really competent team in place at the PESB. The top political leadership can then insulate it from every kind of pressure and reduce the say ministries have over individual appointments.

PESB can also increasingly advertise top posts so as to enable non-government aspirants to apply for them. Once competent people are chosen without them having to lobby with individual ministers, they will be much better able to stand up to ministerial interference.

There is also one cardinal way of giving far greater autonomy to public sector units across the board, suggested by none other than a retired IAS officer, former Sebi and disinvestment commission chief G V Ramakrishna.

His idea was, put the government's shareholding in public sector units in a trust, man it with eminent trustees and let this trust be the final arbiter of the affairs of public sector units. Once this is done, privatisation can be postponed for a later date even while enhancing the value of those organisations and their shares.

There is nothing in the minimum programme that opposes this. In fact, the programme comes out in favour of more autonomy for public sector units and more substance to the practice of granting "navaratna" status to leading units.

Every idea in the foregoing can be faulted for being terribly passe, but familiarity has not created acceptance among those who matter.

sub@business-standard.com