There is no need to consider any of the first five routes, as these will obviously result in the ordinary investor being loaded with shares at a higher price and the government with a lower realisation. The difference between the two will go to the intermediaries, all of whom will try to fatten themselves at the cost of the producer, that is, the government in this case, and the consumer, that is, the ultimate holder of shares, including thesmall investors.

For example, if the shares of a company are taken by any of these agencies at say Rs 100 and later retailed to the investors at say Rs 120, the difference of Rs 20, either wholly or partly, will go to these agencies.

A former union industry minister recently observed that, "The SPV is a Machiavellian device that will make the PSUs poor as church mice and the FIs fat cows". The proposal of the disinvestment commission is a clever device to perpetrate itself through the NST. The share buyback route is fraught with the danger of these companies trying to underprice the shares so that the benefit of a wider margin between the prices of buyback and of sale subsequently in the market goes to them. At any rate, this is a device which can not be utilised by all companies.

Crucial issue is pricing: In a direct offer for sale to the public, the crucial issue is one of pricing it. In the case of a PSU whose shares are already listed and traded quite frequently, the offer price can be peggedat 10-15 per cent discount to the prevailing price as practiced by companies in the UK.

In an IPO, however, pricing the issue properly, which basically means the government not being denied a proper price on the one hand, and the price being attractive enough for investors on the other, is a more difficult task.

The formula prescribed in the erstwhile valuation guidelines of the Capital Issues (Control) Act, 1947, which was repealed on May 29, 1992, can be used. This was strictly based on the net asset value (NAV) per share and the average post-tax profit-earning capacity value of the preceding three years, capitalised generally at 15 per cent. The premium amount that would be admissible as per the discounted cash-flow method can also be taken into account while fixing the offer price. Normally, an offer price so fixed will result in heavy oversubscription, and there will be no need for any underwriting. In a few doubtful cases, as a precautionary measure, there can be underwriting arrangementstoo.

Alternatively, a small portion of the offer, say 20 per cent at the most, can be sold by the book-building method, which will help greatly the price- discovery process. The post-listing price can then be taken as a benchmark for fixing the offer price of the residual shares. The method can also be used in the case of listed shares, which are either not traded or traded infrequently.

The government's hesitancy to enter the market at present because of the low prices prevailing in the secondary market is rather misplaced.

Primary issues of companies with strong fundamentals always attract an excellent public response, irrespective of the conditions prevailing in the secondary market. In fact, investors in India have been starved of good primary issues in the last three years. Oversubscription by about 13 times to the public offer of shares by Corporation Bank in October 1997 demonstrates this point. What is, however, crucial is proper pricing.

The government should use disinvestment of shares ofPSUs as a means to rejuvenate the languishing stock market instead of waiting for its recovery to divest.

Finance minister Yashwant Sinha was right when he stated recently that, "We will not wait for the market to turn or reach a certain imaginary level before we go for disinvestment." If the issues are priced properly, there will be heavy oversubscription, and government can exceed its target of Rs 5,000 crore in the current year. We have enough savings in the economy. The entire disinvestment amount can be offered in the domestic market and there is no need to make any GDR issue. Household-sector savings alone in the current year will be more than Rs 3 lakh crore, while mobilisation from the primary market in the first six months was a meagre Rs 2,409 crores, of equity was Rs 332 crore only. Reservation for small investors applying for say up to 500 shares needs to be made to the extent of say 75 per cent of the issue to widen the shareholding base.

The privatisation process in the UK led to a massiverise in individual shareholding from 7 per cent of the adult population in 1979 to 14 per cent in 1986. Privatisation of British Telecom in 1984 produced 2.6 million new shareholders. The success was mainly because the shares were sold directly to the small investors at "attractive prices", and there is no reason why the centre should not follow suit. A similar experiment conducted in the latter half of the 70s while diluting Fera issues generated about two million new shareholders, all of whom earned handsome returns instantaneously.

The author is a former executive director of the Bombay Stock Exchange