The counter-narrative to the golden period of privatisation is buried in a doc that no one knows about

You can judge the rarity of this precedent by the fact that even today, after two decades have passed since the event, the story is narrated only in whispers, in the company of people one can trust and is accompanied by requests to keep the identity of the sources a secret.

In the 1990s, under the stewardship of the then Finance Minister Manmohan Singh, India had opened its gates to the world. The domestic economy, where PSUs had served as engines of growth, had started welcoming private players. And therefore, the public sector was being put to scrutiny time and again, its graph juxtaposed with that of the private sector. The first milestone in the history of disinvestment dates back to 1999. The governments prior to this year had also pursued disinvestment of state-owned enterprises, but with considerable restraint, indulging mostly in minority stake sale of selected PSUs. The second coming of the Bharatiya Janata Party's (BJP) charismatic leader and former Prime Minister Atal Bihari Vajpayee in October 1999 put the great disinvestment plan on steroids. It was under his premiership that for the first time a dedicated ministry was set up for disinvestment in December 1999.

A file photo of former Prime Minister Atal Bihari Vajpayee. It was under his premiership that for the first time a dedicated ministry was set up for disinvestment in December 1999.

But here's a little-known fact that has been buried under the weight of history — conspicuous only by its absence in the mainstream narrative. In the same span of time, exists a document that calls into question the rationale behind the Vajpayee government's push towards divestment — a 300-page-long study that showed using empirical data how the public sector was doing better than the private. The report is crucial not just because of its findings but also because it symbolises a struggle of a rare kind. One where the public sector rallied to make a case against its owners' viewpoint. You can judge the rarity of this precedent by the fact that even today, after two decades have passed since the event, the story is narrated only in whispers, in the company of people one can trust and is accompanied by requests to keep the identity of the sources a secret.

The eye of the storm

The Standing Conference of Public Enterprises (SCOPE) is an apex professional organisation representing the Central Public Sector Enterprises (CPSEs). The best explanation that I received about its powers came from a former chairman and managing director (CMD) of the body. He was once asked by someone in the government, why does the public sector need SCOPE? And he had responded by saying that in his capacity as the CMD of SCOPE, he could say things about the public sector that he could never think of saying if he thought of himself as the CMD of the PSU he headed. And SCOPE occupies the centre-stage in this story.

Arun Shourie (centre) with his then senior BJP colleagues Atal Bihari Vajpayee (right) and Murli Manohar Joshi (left) in February 1993.

In 1999, Vajpayee had found his ally in former journalist Arun Shourie and had roped him in as Minister of Disinvestment. Shourie was of the view that PSUs were turning out to be a liability on the government. In an interview given in 2001, he was at his eloquent best when he compared PSUs to bleeding ulcers: "Actually, some think that family silver is being sold (referring to the disinvestment of PSUs) when, actually, these (PSUs) are not crown jewels, these are bleeding ulcers." It's quite something that Shourie's choice of words is still employed by columnists and editors when talking about PSUs. Still as much in vogue as at the time they were first uttered. Shourie steered the course of India's public sector. A former researcher associated with a firm which was deeply engaged in studying the public sector in the 1990s said that the Vajpayee government went for whole hog asset sale through privatisation. The popular view of the time was one that rhymed with Shourie's. A former CMD of a PSU, who headed a company around the same time that the government was pursuing a strategic sale, said that had the BJP not lost to the Congress in 2004, they would have privatised all of the PSU sectors. The statement carries a lot of gravity. It may or may not have been true but it conveys a picture of the paranoia that pervaded the public sector at the time. It had obviously caused discomfort and put SCOPE on edge.

"Actually, some think that family silver is being sold (referring to the disinvestment of PSUs) when, actually, these (PSUs) are not crown jewels, these are bleeding ulcers"

And therefore, the apex body for CPSEs decided to make its case by commissioning a research firm to compare the performance of the public sector with private and back its findings with data. Centre for Industrial and Economic Research (CIER), headed by eminent economist Dr SR Mohnot, was put to task.

The findings of the study

When the study was finished, SCOPE found solid ground to make its arguments. For it managed to refute a number of assumptions that had been made about the public sector. In a strongly-worded report published in the January 2001 issue of SCOPE's in-house magazine, Kaleidoscope, the organisation laid out its arguments: "The misinformation generated by the vested interests has been so powerfully orchestrated that few appear to be concerned with the objective facts. SCOPE-CIER study establishes that the performance of the public sector in terms of financial parameters has been improving markedly since the onset of economic reforms programme. It is comparable with the private sector in terms of economic value added (EVA) and returns on capital employed (ROCE)." One of the most baffling facts uncovered by the study was that during the last three years (1998-2000), the government had recovered more than the total capital invested, in terms of taxes, dividends and interest.

One of the most baffling facts uncovered by the study was that during the last three years (1998-2000), the government had recovered more than the total capital invested, in terms of taxes, dividends and interest.

Quoting the CIER study, the report said, "…the government has earned Rs 1,53,835 crore in three years against its total cumulative investment of Rs 96,720 crore… Even if the share of profit retained by the corporation is excluded, the total received by the Exchequer comes to Rs 1,28,225 crore, still 138 per cent of the invested capital." The study compared the performance of top 50 and top 100 public and private sector companies and found that the two were neck to neck across a number of segments, while CPSEs outperformed its counterpart in a number of categories.

When SCOPE decided to make its case before govt

With the numbers on the table, SCOPE arranged an interaction meeting between the Minister of Disinvestment (Shourie) and the then CMD of SCOPE, Uddesh Kohli, and other CMDs of PSUs, in October 2000. A public sector employee, who was then part of the meeting, said that a presentation was made by the apex CPSE body in front of the minister to show the findings of the SCOPE study. The idea was to convey that the prevailing opinion about the private sector being resource-efficient while CPSEs being resource drainers was not backed by empirical data.

Bharat Aluminium Company Limited's (BALCO) Sheet Rolling Division and Foundry in Korba, Chhattisgarh. It was taken over by Vedanta and has since been making profits.

"Shourie's response was quite strategic. He snubbed the person making the presentation before the top officials of the country's biggest PSUs. Without naming anyone, he told the crowd that they will have to fall in line with the government plans. And then spent the rest of the evening, chatting pleasantly with the CMDs. A message had been conveyed. There was no scope to register dissent," the source said. During my meeting with Kohli, I brought up the issue of Shourie's behaviour and allegations made by few that the response dished out to the presenter of the report was meant to convey that the study conducted by SCOPE was not to be taken seriously or released to the media. It was rejected by the former SCOPE CMD, who said that nothing of the sort happened and that the study was released to the media eventually. In SCOPE's archive, there's proof that provides weight to the fact that the study was indeed released to the media. But there's a possibility that there's a catch.

The sale of ailing PSUs like — Modern Foods, Paradeep Phosphates, two units of Hotel Corp and 17 units of ITDC, et al — had not caused much heartburn because they were making heavy losses. But what set tongues wagging was the putting up of four big names on the block — Bharat Aluminium Company (BALCO), Hindustan Zinc (both were sold to Sterlite Industries), Indian Petrochemicals Corporation Limited (to Reliance Industries) and VSNL (to Tata group).

A PSU employee, who spoke on the condition of anonymity, said that after Shourie met the CMDs, a press release in this respect was given to the media and a line was added at the end of the brief that the SCOPE study was released by the minister on the occasion of the meeting. No word had been out till then on the findings furnished by the SCOPE-CIER study, but after what happened at the meeting, media was rallied to attend the press conference scheduled for the next day via a late-night call. The scoop was lapped up by all media houses.

Another storm

Towards the end of the 1990s, the government drive to disinvest state assets was not being met by criticism only by the Opposition, it had garnered the wrath of BJP's coalition partners as well. The sale of ailing PSUs like — Modern Foods, Paradeep Phosphates, two units of Hotel Corp and 17 units of ITDC, et al — had not caused much heartburn because they were making heavy losses. But what set tongues wagging was the putting up of four big names on the block — Bharat Aluminium Company (BALCO), Hindustan Zinc (both were sold to Sterlite Industries), Indian Petrochemicals Corporation Limited (to Reliance Industries) and VSNL (to Tata group). In 1997-98, BALCO had achieved an all-time high turnover of Rs 861.23 crore and profit of Rs 133.86 crore. Similarly, VSNL also made huge profits of Rs 1,478 crore on a netblock of Rs 1,644 crore in 1999-2000, the year it was privatised.

In 2002, veteran journalist Paranjoy Guha Thakurta wrote that IPCL, a Navratna company at the time, was offered to Reliance on a platter even when the Ambani-controlled behemoth was not the lowest bidder. "The Reliance group bagged the 26 per cent stake in IPCL for Rs 1,491 crore (Rs 14.91 billion) by bidding Rs 231 per share against Rs 128 bid by IOC, Rs 110 by Nirma and an official "reserve" price of Rs 131," Thakurta wrote. Recounting the events years later, the former CMD of SCOPE said that he had always admired Shourie for his fearlessness as a journalist. "When at the helm of Indian Express, Shourie had authored a series of investigative stories on how the successive Congress governments had bent over to favour the Ambanis. And yet, he was the one who sang a different tune when it came to giving away IPCL to Reliance," he said.

Shotcrete being sprayed inside the Sindesar Khurd mine to prevent the falling of small rocks after blasting at a zinc-lead mine operated by Hindustan Zinc Limited. With Vedanta buying a majority stake, Hindustan Zinc has gone from deep losses to becoming the group's most profitable unit.

At a time when the government was already facing tough questions from left, right and centre in the Parliament, the SCOPE study provided wood to fire. It was picked up by Congress firebrand Mani Shankar Aiyar. On digging up the Lok Sabha debate archive, I found out that he raised the same questions as I did on discovering the report. The answers to which I could not seek from Shourie because of his refusal to speak to media. Aiyar said, "Mr Chairman, Sir, between the last debate and this one, there has been a very important development in regard to disinvestment. And that is this massive 300-page report brought out by the employees of this government who are represented in the Standing Conference on Public Enterprises (SCOPE)… At the start of this session, I asked a question – Unstarred Question No. 2066. It is here with me. I asked as to whether the hon. Minister of Disinvestment knew of this report and what was his reaction to it." The rest of the debate involves statements made by several other leaders, demanding more transparency in the process for selecting the PSUs for divestment and for telling the Parliament how the proceeds of the sale were used. It ends with Aiyar and a bunch of other leaders staging a walkout because their questions had remained unanswered. Through the debate, even though Shourie does dwell on the issue of transparency, he makes no mention of the report, whether he knew about its existence or not or what was his reaction to it.

In 1997-98, BALCO had achieved an all-time high turnover of Rs 861.23 crore and profit of Rs 133.86 crore. Similarly, VSNL also made huge profits of Rs 1,478 crore on a netblock of Rs 1,644 crore in 1999-2000, the year it was privatised. In 2002, veteran journalist Paranjoy Guha Thakurta wrote that IPCL, a Navratna company at the time, was offered to Reliance on a platter even when the Ambani-controlled behemoth was not the lowest bidder.

Kohli says that the report hardly made any change to the government's disinvestment drive. And he's right. The ruling party had the required numbers in the Parliament and pushed through its policies with ease. During its time in power, the Vajpayee government managed to raise the best-ever disinvestment proceeds of Rs 21,163 crores (between 2001-02 and 2003-04) as against the target of Rs 38,500 crore. In the years to come, the bullish attitude with which Vajpayee pursued disinvestment despite stiff opposition from both within and outside the government came to be remembered as his legacy.

An example that's often called back to show the leaders of today how to cure the public sector of inefficient and loss-making companies. The fact that a study like the one conducted by SCOPE existed at any point of time has been looked over. A new order has been built. But the malaise infecting the system remains the same. The PSU purge is still far from over.

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