People's Democracy

(Weekly Organ of the Communist Party of India (Marxist)

Vol. XXX

No. 32

August 06, 2006

Reforms, NCMP And Coalition Dharma


W R Varada Rajan


THE recent strike by the workers of Neyveli Lignite Corporation, leading to the prime minister deciding to put on hold all the disinvestments proposals ‘pending a review’ has sparked off furious outbursts by the advocates of economic reforms. The threat by the DMK chief to withdraw his ministers from the UPA cabinet, which obviously led to the decision by the PM, is described as a sort of unholy act, undermining the authority of the prime minister and blackmail by a coalition partner. In the process, jibes are being thrown at the Left parties as if this move by the DMK has led to a loss of face for the former. 




This strident chorus of ‘reforms at peril’ apparently stems from a flawed perception as though the economic reforms process is a holy cow and it is out of bound of what is repeatedly referred to as ‘coalition dharma’.


The present regime ruling at the centre led by the Congress with Dr Manmohan Singh, as prime minister, is not a single party government. It is a coalition comprising of several parties, most of them with their priorities as regional dispensations. The arithmetic that sustains this government is the outside support of the Left parties, extended not unconditionally but based on the National Common Minimum Programme.


The efforts of the UPA regime to pursue its reforms agenda has to be viewed in the backdrop of this ground reality and not just by the zeal and commitment to accelerate ‘reforms’ on the part of the prime minister or his finance minister.


What is the NCMP commitment on public sector or for that matter the disinvestments and privatisation issues? The NCMP asserts that the UPA government is committed to a strong and effective public sector. It assures: ‘generally, profit-making companies will not be privatised" and “all privatisation will be considered on a transparent and consultative case-by-case basis”. It asserted it will “retain existing ‘navaratna’ companies in the public sector, while these companies raise resources from the capital market”. There is also the talk of modernising and restructuring sick public sector companies and revival of sick industry. It added: “The UPA government also believes that there must be a direct link between privatisation and social needs — like, for example, the use of privatisation revenues for designated social sector schemes”.


Significantly, the NCMP concluded, “This CMP is the foundation for another CMP — collective maximum performance". There is no mention of ‘disinvestments’ anywhere in the entire text of the NCMP. It is another thing if one were to argue ‘privatisation’, which finds a place in the NCMP is synonymous with ‘disinvestments’. 




But, from the very beginning, the finance minister, instead of laying stress on ‘maximum collective performance’, had been giving his own arbitrary interpretation of the NCMP parameters. In the very first budget presented by him, he declared: “The NCMP contains clear policy guidelines regarding disinvestment in PSEs. As long as government retains control over the PSE, and its public sector character is not affected, government may dilute its equity and raise resources to meet the social needs of the people”.


He also proceeded to utilise the move by a navaratna company NTPC to raise capital from the market, to piggy-back on the public issue of NTPC and disinvest approximately five per cent of its holding. He also announced: “this and some other cases which are under examination are expected to yield a sum of Rs 4000 crore in the current year”.


Even if this action of the finance minister is premised on the NCMP provision for ‘privatisation’, did he line up the NTPC or the ‘some other cases’ for getting Rs 4000 crore in his kitty through a ‘transparent and consultative case-by-case basis’ process, either within the UPA coalition or in the UPA-Left coordination panel?


Reiterating the “direct link between privatisation and social needs” the finance minister said: “While the disinvestment revenues will be part of the Consolidated Fund of India, I shall, while presenting the Budget for 2005-06, report to the House the manner in which the said revenues have been or will be applied for specified social sector schemes”. This promise does not find any reflection in the subsequent two budgets presented by him. 




However, the finance minister subsequently felt it would be more appropriate to credit the proceeds from disinvestments of PSUs to a newly established National Investment Fund (NIF) instead of the Consolidated Fund of India. The Economic Survey of 2004-05 stated: “the broad objective of this fund (NIF) will be to make investments in social sector projects and capital investments is selected profitable or revivable PSEs that yield adequate returns”.


Again, the finance minister resorted to yet another innovative exercise down the line, of establishing ‘a direct link between disinvestment revenues and capital market investments’ and not ‘social needs’. The NIF will be managed by selected public sector financial entities to provide sustainable returns to the government without affecting the corpus. Three asset-management firms viz. SBI Mutual Fund, UTI Mutual Fund and LIC Mutual Fund were mandated to manage the disinvestments proceeds, to be allocated as per decision of the CEO of the NIF, on the suggestion of a part-time advisory board, which has already been constituted.


So, no direct funding of social sector expenditure; no investments in profitable or revivable PSEs; moneys will be diverted to stock markets through mutual fund firms; the government will patiently wait for the returns to come in due course, which in turn will be utilised for social sector spending and for revival of sick PSUs! Is this not selling family jewels to bet on racing? In all these moves, whether at all there had been any consultative approach – not to speak of transparency – within or outside the UPA?


The moot question is will these Mutual Funds deliver more returns on the corpus? The Public Enterprises Survey 2004-2005, published by the government, records that on the total investments of Rs 3,57,849 crore in 237 PSEs as on March 2005, the PSEs posted a net profit of Rs 65,429 crore during 2004-05. In terms of dividend alone, the PSEs have paid Rs 20,713 crore in 2004-05, up by 35 per cent over the previous year. Is there anyone who can guarantee returns far higher than this to be generated by the Mutual Funds? Why then this dubious exercise?




Even if the finance minister interprets the provision in the NCMP permitting the PSEs to raise resources from the capital market to justify his administering frequent doses of disinvestment ‘medicine’, it raises several questions. First, is ‘equity market’ the only component of capital market? Can the PSEs not raise capital resources from the debt market? Second, where does the NCMP confer the right on the finance minister to arbitrarily decide in the matter? Third, how can the finance minister appropriate to the Consolidated Fund of India or the National Investment Fund the proceeds of such ‘resource raising measures’ by the PSEs?


‘Stakeholders’ is one term often finding place in the political and economic discourse post-globalisation. But, ‘labour’ admittedly one among the stakeholders has never been kept in the picture in the ‘transparent and consultative case by case’ exercise concerning the PSUs. That is why the workers decide to articulate their views through struggle, as was done recently in the Neyveli or NALCO cases and they find a positive response from the Left parties or even some of the coalition partners. In such an event, the blame for derailing the ‘reforms’ should squarely rest on those who failed to abide by the coalition dharma or recklessly threw to winds the NCMP commitments.