For the International investor community and the press intent on reading
the tea leaves, this is news.
I personally think it was much simpler - the turban made a mistake and
picked the wrong company and state to privatize. From what I make of it,
DMK was backing the privatization until the opposition made a meal out
of it.
Cheeni
http://www.nytimes.com/2006/07/11/business/worldbusiness/11rupee.html?_r=1&oref=login&pagewanted=print
July 11, 2006
India Stops Privatization, Casting Doubt on Reforms
By SARITHA RAI
BANGALORE, India, July 10 — A decision by the Indian government to halt
all sales of stakes in state-owned companies could crush investors’
interest as it raises fear that a larger program of economic change will
be bogged down in politics.
Last week, Prime Minister Manmohan Singh said in a statement that
privatization plans would be stopped, pending further review, after a
coalition party whose support is crucial for the survival of Mr. Singh’s
government threatened to withdraw that support.
Amid rumors that the prime minister had resigned over the halting of the
privatization program, the country’s bellwether stock market index fell
258 points, a 2.4 percent slide. The prime minister’s office later
denied the rumors.
“This is not good news,” said Chetan Ahya, the executive director and
India economist of JM Morgan Stanley in Mumbai, formerly Bombay,
referring to the halting of the stake sales. Global investors will view
this as a “reaffirmation of the government’s inaction over
privatization,” Mr. Ahya said.
Two 10 percent stakes were lined up for sale in two concerns, the
National Aluminum Company and a power-generating business, Neyveli
Lignite. But these were relatively insignificant compared with the
portion owned by the government in each case, currently more than
three-quarters of the total equity.
The Neyveli sale of a 10 percent stake, for example, would have raised
about $500 million. During 14 years of economic change, the process of
privatization has raised nearly $12 billion for the government,
according to figures from Morgan Stanley.
But investors fear that this stoppage may signal a larger setback, one
that impedes not only the privatization of hundreds of state-owned
companies, but also the entire process of economic restructuring. Those
sales also have helped the government trim its budget deficits.
Foreign institutional investors have been bullish about the Indian
economy and its soaring 8 percent growth rates, pouring more than $10
billion into Indian equities in 2005 and $8.4 billion in 2004.
But in the last two months, the mood has soured as the stock market
tumbled, with the benchmark Sensex index falling more than 15 percent
from its high on May 10. Now, analysts say that the move to stop sales
of stakes in state-owned companies could further discourage investors.
Privatization had come virtually to a standstill, as opposition rose
from regional allies and workers’ unions.
The Dravida Munnetra Kazhagam party, an important regional ally in the
19-party coalition led by Mr. Singh’s Congress Party, threatened to pull
out of the coalition government if it proceeded to sell the 10 percent
stake in Neyveli Lignite.
The party governs Tamil Nadu, the southern state where Neyveli is based.
Thousands of its workers, who had been striking against the stake sale
and possible job losses, resumed work after the government said it would
call off the sale.
“It is not a complete disaster that the privatizations have been
shelved,” said Shankar Narayanan, a managing director who leads capital
investment growth in India for the Carlyle Group, the American-based
private investment firm. “But after frenetic sell-offs, this is a
retrograde step.” Mr. Narayanan manages part of Carlyle’s $668 million
Asia fund.
In the 1950’s, under a socialist-based plan seeking self-sufficiency for
the newly independent India, the Congress Party government of Prime
Minister Jawaharlal Nehru set out to establish a variety of companies.
Over the decades, the government became pervasive in the Indian economy,
managing companies that made cars, baked bread, wrote software, ran
hotels, prospected for gold and even manufactured condoms.
But the Congress Party’s hold on political power loosened over the
years, and, under a program accelerated by the previous government,
officials in New Delhi sold majority stakes in a variety of companies.
The funds raised were expected to finance a social-equity agenda by
helping build roads, power projects, schools and hospitals, and by
providing jobs in poor rural regions.
“The reforms process is much larger than just the sale of stake in a few
companies,” said Mahesh Vyas, chief executive of the Center for
Monitoring the Indian Economy in Mumbai. “We are moving in the general
direction of economic reforms.”
But the larger process of economic reallocation has been mired in
politics. For instance, the government has been unable to move forward
on the politically sensitive revision of labor laws. Currently, hiring
or firing employees by companies is still dictated by convoluted rules.
Similarly, politically explosive proposals like selling stakes in Indian
banks have been repeatedly discussed and shelved. And while global
retailers like Wal-Mart or Tesco knock on India’s doors, the government
has chosen not to allow direct foreign investment in retailing.
Even in sectors where reform is relatively uncontroversial, like
infrastructure and finance, the pace has been slow. About the only
recent change of any significance has been the recent privatization of
India’s busiest airports in Mumbai and New Delhi.
Still, some investors say that the country’s fundamental growth factors
are in place. “We remain positive and unambiguous about India,” Mr.
Narayanan said.
But underlying the current economic growth rates, Mr. Ahya, the
economist, said, the slowing of change could lead investors, to “go
through some pain.”
