People's Democracy

Primitive Accumulation Through Privatisation

C P Chandrasekhar

IT was an announcement that shocked even the overzealous minister for disinvestment, who believes nothing can go wrong with his high profile drive to sell public properties at a rapid pace. On October 18, 2002, Batra Hospitality Pvt Ltd announced that it had sold Centaur Airport Hotel at Mumbai to the Sahara India group for a sum of Rs 115 crore. What was reported as a routine commercial transaction by A L Batra of Batra Hospitality has triggered a controversy that is likely to prove extremely embarrassing to the government. This was because the Airport Centaur had been acquired by Batra from the Air India subsidiary Hotel Corporation of India (HCI) for a sum of just Rs 83 crore, barely six months back. At that time, this sale of Airport Centaur (along with the Centaur Hotels in Juhu and Rajgir) was presented as one more case of the highly successful and transparent, accelerated disinvestment drive that Arun Shourie had launched.

UNDERSELLING PUBLIC ASSETS

Since even Shourie cannot convince anyone that the property market in Mumbai has changed dramatically for the better over the last six months, this Rs 32 crore profit made by Batra on a Rs 83 crore transaction, makes clear that the price at which the disinvestment took place was way below the value of the property. Whether consciously or otherwise the government had undersold public assets. This in itself is cause for concern, since it provides material evidence to support the allegation that virtually every one of the disinvestments made by the government since the sale of Modern Foods was at a price which was substantially below what the actual value of the assets warranted.

The underselling allegation is even more damaging because in most cases in the recent disinvestments drive the government has gone out of its way to mollycoddle possible buyers. Evidence of this had emerged earlier in the case of the Centaur Juhu, where Ajit Keskar, who had bid Rs 153 crore to win himself the property in November 2001, did not pay up within the stipulated time. Despite protestations from the ministry, which repeatedly held out the threat of encashing the Rs 5 crore bank guarantee and cancelling the offer, Keskar managed to hold out for months together. At that time Shourie had gone on record as saying that the government is unlikely to lose if it goes in for a new round of bids, since in the case of some other HCI property, the government was offered Rs 10-12 crore more when it called for fresh bids. What this proved was that (i) the bidding process was flawed from the point of view of arriving at an appropriate price from the point of view of the government; and (ii) Shourie’s decision to wait for Keskar to deliver was clearly an effort to placate private buyers and keep them happy under any circumstances.

 UNUSUAL PROBLEMS

The effort to give potential buyers special treatment has created a number of unusual problems in the Centaur Airport case. For instance, days before the sale was formally announced a controversy arose over the actual ownership of a petrol pump which Batra claims was acquired as part of the deal. According to him, the property sold to him by the government included three components: the Centaur Airport Hotel itself, six flats in Andheri east and a petrol pump located across the hotel. According to Batra Hospitality, the deal between it and Sahara India also involves the sale of these three components.

In preparation for the sale of the property, Batra claimed ownership of the petrol pump on the grounds that the disinvestment ministry's Information Memorandum on Centaur Hotel had said "the pump operated by the hotel would be transferred to the new owner of Centaur". However, Indian Oil Coporation disputed the claim on the grounds that neither the disinvestment ministry nor the Hotel Corporation had the right to “transfer” this “property”, since neither of them were owners of the same. According to the IOC, the pump was a company-owned, dealer-operated facility being run on land leased out by the Airport Authority of India. In this case the HCI was the dealer, and its role as dealer had nothing to do with its ownership of the Centaur. This implies that even if the dealership was transferable, there was no automatic link between the sale of the Centaur hotel and the transfer of dealership, since the HCI as an entity continues to exist even after the sale of Centaur Airport, Mumbai. When Batra sought to challenge this interpretation, as a prelude for his highly profitable sell-off, the IOC stopped supplies to the pump and sealed it. That controversy is still unresolved.

Clearly, in its eagerness to “find a buyer” for the property, the disinvestment ministry did not even check the status of HCI’s rights over the petrol pump, and bundled it along with the hotel and six flats when inviting bids. This practice of bundling assets that are in themselves valuable, along with other properties, resulting in some loss in the former’s value is not uncommon for the disinvestment ministry. Some time back the decision of the disinvestment ministry to bundle the ITDC’s profitable flight catering unit in Bangalore along with a hotel in that city when inviting bids for privatisation and making the sale, had resulted in a controversy between the ITDC and the ministry. Using his clout, Shourie at that time overrode the objections of ITDC officials, who had claimed that the sale price did not warrant inclusion of the profitable flight catering unit in the deal. The Centaur episode reveals that the ITDC officials were in all probability completely right.

  IMPLICIT CONCESSIONS

In the Centaur case, the disinvestment ministry’s implicit concessions to Batra Hospitality went even further. The land on which the Centaur Hotel is located belongs to the Airports Authority of India (AAI) and had been given to the public sector HCI on long lease at a nominal rental. At the time of the disinvestment, the ministry is reported to have persuaded the AAI to lease out the land to Batra Hospitality for 30 years at a low rental in order to render the property more attractive. The AAI has now declared the sale of Centaur to Sahara illegal, since Batra Hospitality had neither intimated it of the transaction nor sought its permission. The AAI is under no compulsion to transfer the lease to Sahara India, and even if it were to, it could change the terms of the lease, which could upset the calculations on the basis of which Sahara decided to make its Rs 115 crore offer.

These developments have raised the possibility that the deal may not go through yet, despite the fact that the ministry of disinvestment had not put in any lock-in clause into the sale agreement, in order to prevent speculative bids from the likes of Batra. The agreement signed between the government and Batra, which transferred the Centaur property on a “slump sale basis” (or transfer of the entire business to a new owner), does not preclude the sale of the hotel to a third party. The ministry itself claims that since this is not a case where the government retained a stake, but amounted to a complete sale of the property, it did not find the need to provide for any such clause. A ministry spokesman reportedly told the press: "When we have sold the property lock, stock and barrel to a private party, how can you prevent him from selling it to a new buyer? It's like selling your house to somebody and telling him that he cannot sell it to anybody else." What was missed by the naïve logic of the spokesmen was that the law does allow for a variety of such clauses to be put into agreements of sale and purchase. Adopting this attitude amounts to sending an invitation to speculators, who would seek to keep bids low in order to make a quick profit, as Batra clearly did. In the absence of other serious bidders, this could force the government to divest at a low price, as seems to have happened in this case.

But not everybody is likely to be convinced that the case is just one of unconscious error. According to some reports, Batra is close to the Rashtriya Swayamsewak Sangh, whose influence on the government is obviously overwhelming. This raises the possibility that he was favoured in the deal, rather than sold the property at a low price by mistake. In either case the evidence is now clear: suspicions that public property is being sold at low prices to private players are quite clearly valid, as the “market” itself has shown. The state in India has for long been the site for primitive accumulation of capital by private players. What is appalling is that to make disinvestment or privatisation one more means to such primitive accumulation, a propaganda war had been launched to run down the public sector and establish that the sale of public properties at any price is warranted. In some cases the evidence even suggests that much-needed investments had been frozen consciously or otherwise so that profits would fall, justifying sale at low price.

Unfortunately the media, especially the financial media, have had a major role to play in pushing for privatisation at any cost and building the ethos in which cronyism and corruption could combine to ensure the transfer of surpluses from the state to ostensibly “more efficient” private players. As the Centaur episode shows, some even if not all such “efficient” players may be just efficient speculators. This is not just true of relatively less known players like Batra Hospitality. We must not forget that the controversy over the decision of VSNL, immediately after acquisition of a strategic stake and management control by the Tatas, to invest huge sums from its surpluses in start-up Tata Teleservices, is yet unresolved.