Sunday, August 30, 2015

Sham Privatization

The recent disinvestment of the government's shares in Indian Oil Corp. (IOC) to the tune of $1.4 billion was a complete sham, with state-run LIC buying up about 86% of the shares, according to a regulatory filing accessed by Reuters. The biggest irony was that this transaction was made on the day that was called Black Monday, when the stock markets in India and across the world crashed as a result of a massive crash in the Chinese stock markets and a slowdown in the Chinese economy that the Communist Party has been unable to control. Not only does this belie thoroughly incompetent execution, it also shows that Finance Minister Arun Jaitley's team is absolutely clueless about what to do about disinvestment and privatization, a state not dissimilar to his predecessor, P Chidambaram (PC).

One arm of the government signing a check to another arm is not called disinvestment. The idea of disinvestment is to break companies from government control and allow direct control by the people of the country in the form of shareholders. This brings in competition and increases opportunities for all. In the case of this IOC disinvestment, the government continues to control the company using life insurance money from the general public, which is a complete sham for everyone. This move is a mere accounting measure to show an artificial increase in government revenue in order to meet deficit targets without actually indulging in any reforms.

This is not the first government to play this game and it won't be the last. However, the manner by which it was elected gave a great deal of hope that people would not get a raw deal. There is a huge, winning constituency that favors real economic change, privatization and a general curtailment of the powers of the government. Jaitley, who lost an election in a wave that should've been in his favor, clearly doesn't see this constituency. He is merely a saffron PC.

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