NEW DELHI; Multinationals are about to enter the arena of less strategic defence equipment production in India, it is earned. Chief executives of two US-based multinational companies have held close consultations with members of a high-powered committee consisting of senior bureaucrats to consider the case of the entry of multinationals through the disinvestment route.
The list of these “less strategic industries, under the administrative control of the ministry of defence, is being kept a closely guarded secret, Sources in the ministry say no decision has been taken regarding the exact items which will be manufactured by the multinational firms.
The highly-powered V .Krishnamurthy committee on public sector disinvestment has recommended that the government should increase its level of disinvestment from the present level of 20% to 40%. The committee members feel that this is the minimum level of disinvestment which can make the exercise meaningful even in case of industries under the administrative control of the defence ministry. The committee, in its draft report, had said that while each case should be studied in detail, disinvestment should be made to such levels that would enhance enterprises to be run and commercial lines as board managed companies.
At least two multinational firms, according to a highly placed official, have been pressurizing the government to open those areas of defence production which can enable buy-back arrangement. The Krishnamurthy committee had recommended that certain units whose contribution to defence needs is less critical can be subjected to disinvestment without losing absolute control. The multinationals seem to have utilized IMP strictures to pressurize for equity participation in these areas. According to sources in the defence ministry, the entry of multinationals even in such Iess-strategic cases would invite threats to national security.
Sources in the ministry of finance confirm that the Indian stock market does not have the capacity to absorb a large amount of disinvested shares of public sector enterprises. The question is relevant in view of the fact that the total capital issues raised in 198990 was of the order of Rs 2,600 crore of which equity and preference capital was only Rs 504 crore. The total capital raised in a whole year (inclusive of debentures) was only 1,1% of the assets of public sector enterprises, Even the secondary capital market was Rs 21,380 crore in 1989-90 and Rs 36,612 crore in 1990-91. Even in the scam year in 1991-92, the figure was Rs 71,717 crore. This was inadequate even to raise eight per cent PSU investment that the government had targeted, The multinationals are aware of this and would take every opportunity to mop up disinvestment shares.
The National Confederation of Central Public Sector Officers Association (NCCA) in an open letter to members of Parliament has pointed out that multinationals may invade the public sector in India both from the front and the back door. The association has pointed out that at the moment the shares have been given to mutual funds, and the profits accrued through subsequent market transactions, But, once the Narasimha committee recommendations are implemented and the financial institutions denationalized, NCCA says all gains would go into private hands,
According to a senior official in the ministry of finances, commercial borrowings in the form of the debts to the IMF will in all probability never be converted to equity. And is through this dept. trap that multinationals especially those from countries, will begin to make forays into key public sector areas.
Article extracted from this publication >> Aug 21, 1992
