Government Must Spike Attempts To Sabotage BPCL Sale – And Win The Argument On Privatisation

The momentous recent decision of the Narendra Modi government to privatise Bharat Petroleum Corporation Limited (BPCL), Concor and Shipping Corporation of India – and the earlier one to sell Air India – should mark a turning point in the economic discourse of independent India. The government now has the opportunity, and the duty, to debunk all myths about privatisation. In the process it can redefine the future roles of government and business.

Two years before he became Prime Minister in 2014, Narendra Modi famously said that government has no business to be in business. But in his first term, he showed no major inclination to pursue this ideal to its logical conclusion. The one major attempt at privatisation – Air India last year – was botched because of wrong timing and poor structuring of the deal.

Modi now has his big chance, and it is essential that both BPCL and Air India must go through without a hitch this fiscal year. Not so much to earn money for the exchequer, but for the larger gain of getting the government out of business and delivering better outcomes for the people.

The government should be under no illusion that these privatisations will go through without a hitch. It should expect to encounter minefields. Rival political parties are already screaming blue murder. One can expect various trade unions to try and sabotage these moves. At the tertiary level, one can expect assorted public interest litigants to use the courts to delay or damage the process. So, Modi and his ministers should be on guard to spike the guns of the likely saboteurs before they are fired. Caveats must be filed in the Supreme Court so that no court issues a stay without hearing the government.

But the biggest challenge is to win the argument with the public. There must be clear messaging on why some public sector companies are better off as private companies, and how all people benefit from privatisation. This means all the arguments being thrown at the government against privatisation must be met head on and hit out of the park.

The first, and most obvious, argument is that the government is privatising companies because the economy is in trouble. This argument is rubbish, for you sell the family silver only when you are in trouble, and not when you have no need to. The people should be told that because the economy needs to grow and the poor need to be protected, it is better to sell some companies than to opt for the alternative of tightening our belts and making everybody suffer due to a lack of resources with the government.

The second argument is silly – but seems to work with some people. BPCL is a profitable company, so why sell? What this illogic statement misses is that you can sell only what has value; you can’t sell something that is going to cause a loss to the buyer. It is profitable companies that can be privatised, not loss-making ones. The only exceptions are temporary loss-makers. If a prospective buyer thinks that the losses are cyclical or that he can make the same company deliver higher profits through a change in the product-mix or better management, then loss-makers are really not loss-makers at all, but temporary underperformers.

The third argument, one used by Congress spokesperson Sanjay Jha on a TV channel yesterday (21 November), is that BPCL is a strategic asset and hence must not be sold. One can, by the use of imagination, call any asset a strategic one, but this statement needs questioning for two reasons. One, the sale of BPCL merely involves a shift in ownership of this “strategic asset”, and hence it is not unavailable to the country. If a refinery and retail operation is strategic and must remain in the public sector, why did we even allow Reliance and Essar Oil to set up huge refineries in the private sector?

The other point about oil as strategic is that in the long-term it may actually become less important even for India’s needs. The world is moving away from fossil fuels, and India is too. From promoting electric vehicles to rapidly building solar power capacity, this trend will only accelerate. If BPCL has any value, it is because right now our dependency on oil to meet energy requirements is high; but this may not be the case 10-20 years later. It makes more sense to sell BPCL when it appears “strategic” to a potential buyer, and not later, when it will not have the kind of value that it has today.

The fourth argument is related to the third: what if we need to commandeer the BPCL oil refinery for national purposes in case of, say, a war? Will a private sector player pay heed to the country’s interests? Actually, in a crisis, any government can commandeer any resource from anyone. This argument was used earlier, when it was said that Air India must not be privatised because it comes in handy when we want to evacuate Indian nationals from a war zone or for, say, transporting defence personnel. The reality is that when the services of a private operator or company are needed for a national emergency, government always has the power to order them to toe the line – and compensate them for it. Half the wealth of many private entrepreneurs was built during the Second World War years, when private capacities were used for the war effort – and the companies gained huge business opportunities from war.

The one argument that should settle the dispute forever is conflict of interest: the government is regulator in most industries that need regulation. If it is running a company of its own, can this regulation be seen as truly neutral between players? The best situation is one where the government focuses on making good policy, and lets private players run most businesses. This way policy-making will not be hampered by the need to protect public sector.

Another argument worth making with the electorate is to ask them a simple question: were you better off when telephony was entirely a government business, or now, when for a few rupees you get to use both voice and data, and private companies are wooing you with better offers and deals? Did you like it better when you waited three years for a scooter, or now, when discounts are being rained on you?

Petroleum Minister Dharmendra Pradhan repeated Modi’s old statement that it is not the business of government to run business. Quite. Its business is to regulate and enable business. Hence privatisation.

Modi, the great communicator, must win this argument in the interests of economic sanity.