India draws up aggressive privatisation roadmap

India has prepared a strategic roadmap for the privatisation of state firms that envisages raising between Rs 100-500 billion ($2-10 billion) annually over a three-year period.

The privatisation plan, prepared by the Department of Divestment, pushes hard for the sale of majority stakes in state firms to garner the maximum value for the shares, according to an official document acquired by AFP.

The department has suggested the Indian government should first start with a high profile privatisation to generate momentum, followed with a phased programme.

It stressed the need for "a major Divestment" in the current year and suggested candidates such as state telecom firms Videsh Sanchar Nigam Limited and Mahanagar Telephone Nigam Limited.

VSNL is India's international long-distance telecom monopoly, while MTNL operates telephone services in New Delhi and Bombay.

The department also suggested the privatisation of the Gas Authority of India and petroleum firms IBP and HPCL.

The department said the government should vary the privatisation mix, with "periodic major 'headline' transactions and in parallel smaller, lower profile transactions."

State-run companies dominate the economy, spanning sectors including banking, telecommunications, aviation, defence, shipping, insurance and power.

The department's plan requires approval by the Indian cabinet, which could be a difficult battle to win.

Some ministries have been opposing the sale of majority stakes in key state firms, fearing a loss of political and economic clout if the companies should slip out of their control.

New Delhi's sell-off of state-owned firms has also been hampered by depressed market conditions, unrealistic price expectations and opaque policies.

Indian Finance Minister Yashwant Sinha has committed the government to selling equity worth Rs 100 billion in state-run firms during the fiscal year to March 2001.

The divestment department said the phased divestment would help the overall economy by generating funds for public expenditure and bridging the fiscal deficit, while increasing competition in the Indian economy.

Partial divestment -- most of them minority stakes -- in 40 state firms between 1991-92 to 1999-2000 earned Rs 184 billion compared to a target figure of Rs 443 billion.

The department pointed out that Rs 970 billion could have been raised if the government had sold all of shares of the firms.

"The disadvantages of sale of minority stakes by the government are ... lower realisations because the management control is not transferred."

The department also recommended that the government move quickly to divest in those sectors where share prices were deemed to be artificially high.

"There is a bubble in telecom and IT shares. These must be sold early," it said.

"Another sector which can yield large revenues -- without compromising consumers' interests -- would be the power sector, since regulatory structures have been fully established in this sector."

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