How we steal from ourselves

How we steal from ourselves
Shekhar Gupta

How can you sell your family silver?" the howls go up each time somebody tries to privatise the PSUs. Meanwhile, much of what was once supposed to be family silver has turned into tin or, worse, scrap. Who is responsible for this atrocious loss of public wealth? Who else but the politicians who tend to leave their integrity behind once they come into power or deep-freeze their intellect when they sit in the Opposition.

Take the case of Balco, now being sold to Sterlite. In 1996, it was worthy of being called family silver even if it manufactured only aluminium. It made a profit of Rs 163 crore (after tax). It's been falling steadily. Today, it is Rs 25 crore. If the government of the day had the sense to sell it in 1996 and if the political class had concern for our money, the company would have been valued several times higher than now. If you wait another year, it could be among more than half of our PSUs that make losses (even more if you leave out the oil monopolies with guaranteed margins). We will, ultimately, sell it, but at a great cost to public wealth. Of course, it will still be called a scandal by the Opposition of the day and, of course, the Left. Even in the current sale, it has been valued, through various methods, between Rs 275 and Rs 494 crore. The successful bidder offered Rs 551 crore, a fraction more than twice the next bid, from Hindalco, of the Birla group.

This reverse alchemy is the hallmark of our political system. It turns silver into scrap. Four years ago, Indian Airlines had a 100 per cent share of the market. It was a high-value state monopoly. Then we opened our skies to private players, even if selectively, and this market share is now down to 52 per cent, and reducing. It has lost out, not to some all-conquering MNC, but to small, first-time entrants in the aviation business. Today you cannot find a bidder for Indian Airlines.

The Left is at least right on one count. That if you hadn't exposed your state monopolies to competition their value would not have eroded so fast. The corollary is, you cannot have a half-way approach to reform. You expose your monopolies to competition, you must allow them access to capital, private enterprise and thereby a level-playing field. Or you can ban private airlines, and go back to the good old socialist days. But then you wouldn't have given the consumer so much choice, such better deals and a choice of 19 flights a day between Delhi and Mumbai. Not long ago, there were only four. And unless you knew some joint secretary in the ministry of civil aviation or the PS to the òf40ómantriji it was hard to find a seat.

Similarly, on Air India, we have waffled, and meanwhile the national carrier has about as much hope of survival as the national animal, the tiger. How many countries can you name where the national carrier commands less than 50 per cent of their own country's outbound traffic? The bitter truth today is that our true national carriers are British Airways and Lufthansa, with United about to join in. The ministry of civil aviation has meanwhile been selling landing rights to foreign airlines and Air-India has to make do with a few seats on these flights on code-share basis. Any surprise then that even for this piece of family silver there are hardly any takers? Two of the larger foreign airlines, which we all hoped were going to come up with the lolly have just spoken the truth. They do not want Air-India, its 23 old planes or the 18,000 unionised employees that give it a stupendous, probably world record, ratio of 782 workers per aircraft. Yes, they say, we can buy the sovereign landing rights, on which AirIndia has the lien being the national carrier. The planes and the employees, and the brand, you can keep, thank you very much. It is a bit like this. You believe you own a beautiful house. Then you go out to sell it. The buyer says, the house is worth nothing. I want the land. So will you please demolish the house and give me a clean plot of land? How humiliating, and who is responsible for this if not our, waffling, and worse, political classes?

Four years ago, Maruti made a profit of Rs 550 crore with a market share of 80 per cent. Ford, desperate to break into India, offered Rs 9,000 crore for it. But the idea of selling the jewel in the crown to an American MNC was such an outrage. Today, Maruti's market share is down to 60 per cent, and declining. This year, it will make a loss of Rs 220 crore or so. This may worsen as it slashes prices and sells the newer launches like Alto and Wagon-R, at a loss to keep up with the Santros. Even optimistically, it is valued at no more than Rs 6,000 crore (much less if you adjust for depreciation in the rupee value since the Ford offer).

Of the big-ticket companies on the block now, the sale of VSNL, if it ever takes place, will raise a huge furore. It would then be educative to see how dramatically the monopoly has lost value over the three years that we have been deliberating on its sale. Now, with the arrival of Internet telephony, when international phone calls become dirt-cheap, VSNL could be headed the way of Air-India.

The current debate, therefore, is not about Balco or Maruti. It is about some sense of responsibility on the part of our politicians. They cannot go on wiping out our national wealth like this. When the BJP was in the Opposition, it called every bit of privatisation a scandal. Now in power, it is implementing the same policy. But the Congress now opposes it even if its own state governments are aggressively privatising. The Congress government in Madhya Pradesh, for example, has been winding down the state enterprises so rapidly it has had to borrow a hundred crores from the Asian Development Bank (ADB) to underwrite their VRS costs.

Meanwhile, more and more central PSUs continue to erode their value. The state electricity boards will return a loss of Rs 22,000 crore this year, about half of our annual defence budget. And the market gives its verdict so tellingly on our government's ability to run businesses in the way it values the shares of PSUs. Even the mighty Indian Oil Corporation gets a valuation of four or five times of its earning per share whereas its global counterparts go up to 50. Yet, as the Balco case shows so starkly, we insist on blaming the valuer rather than ourselves.

Air India, the national carrier, has about as much hope of survival as the national animal, the tiger. The bitter truth is that our true national carriers are BA and Lufthansa.