That was a little surprising. The government obviously kept the issue managers in the dark about the strategy that it had formulated about floating GAIL GDRs. Should the government have done that? Arent the issue managers supposed to be reliable advisors to the government on all aspects of the issue? One possible explanation of the governments behaviour is that it has immense faith in its own wisdom and does not feel the necessity of consulting the issue managers before taking such key decisions. In that case, why have issue managers at all? Dont they charge a huge fee for providing advisory and other services in respect of such GDR issues?
Last week, a similar drama was enacted. This time it related to Mahanagar Telephone Nigam Limiteds (MTNL) GDR issue. Even before the roadshows were launched, the markets were agog with rumours that the issue would be called off. Most observers, including some fund managers, cited the GAIL instance and wondered how the government could go ahead with a GDR issue when the international markets were in turmoil. A leading news agency even put out an item saying that the MTNL issue had been called off. The report had quoted an unidentified official of the telecom department. But to everyones surprise, the government decided to go ahead with the MTNL issue, even though its size was pruned.
Significantly, the governments reaction to both the developments was somewhat similar. When the GAIL issue was called off and newspapers ran front-page headlines, the finance secretary put up a brave front and said that the unattractive price offered by international investors to the GAIL issue was not a reaction either to India or to GAIL as a company. The chief economic advisor said that global investors should not get an impression that the government was bound to disinvest at whatever price it got.
And when newspapers reported about the none-too-encouraging response of the market to the MTNL issue, almost everyone in the government turned over-sensitive and began questioning the need for the Indian press to carry such reports. Do newspapers realise that any negative report on such an issue can do immense damage to the governments efforts to get a good price for the GDRs? asked a senior government official.
The issue here is not one of the freedom of the press or accurate reporting. There is no doubt that both freedom of the press and accurate reporting have to be ensured all the time and at all costs. But the governments reaction to the GAIL and MTNL issues reveals much more. Ministers as well as senior officials in the government appear to be overtly conscious of the need to succeed all the time as far as GDR issues are concerned. Who will tell them that GDR issues can also fail if the market is not receptive?
In fact, such an attitude is largely the outcome of their failure to appreciate market logic. The government and many of its ministers and officers still believe that calling off a GDR issue would be construed as a failure on their part, just as its successful launch would be seen as their success. The simple truth is that any GDR issue is completely dependent on the market. The government would be better advised to dissociate itself from such GDR issues as far as possible. As is the case in many other countries, the disinvestment exercise should be undertaken by an independent body of experts.
So, instead of the finance secretary worrying over the success of a GDR issue, the responsibility of ensuring its success should be ideally vested with the Disinvestment Commission. At present, the commission is not optimally utilised. Its only task today is to recommend which public sector company should be disinvested. The commission can be made more accountable for its recommendations if the responsibility of disinvestment is also vested with it.
In this manner, the government can kill two birds with one stone. One, this would ensure that GDR issues and disinvestment of government share in public sector undertakings are handled by experts in the field and not by the all-purpose bureaucrats in the finance ministry. Two, it would distance the government, its ministers and officers from these decisions and thereby insulate them against any adverse impact that the decisions might have.
This principle can be extended to many other exercises undertaken by the government as well. For instance, in its new policy the government has announced that prices of diesel would be monitored on a monthly basis to maintain parity with import prices. Accordingly, diesel prices this month showed a marginal fall. In this situation, the government will be tempted to take credit for the decline. But it cannot afford to do so because the prices may rise once again if the import price goes up.
So, a better option for it is to entrust the responsibility of fixing diesel prices with the oil companies. The important point that the government should realise is that as the economy gets deregulated, it should gradually withdraw from active decision-making, particularly in those areas where decisions are completely market-determined.
