A Crusader Who's Taking India Private

After setbacks, Arun Shourie speeds up state asset sales

In a country where economic reform is often all talk and no action, Arun Shourie's privatization program stands out. Until Shourie took over as disinvestment czar in July, 2000, India had put forth a bevy of plans for sales of state-owned industries--but had only managed to sell minority stakes in poor performers, resulting in little real corporate change. Then Shourie stepped in, promising to shake things up--and did he ever. Since his appointment, he has sold controlling interests in 20 companies, including auto maker Maruti Udyog Ltd. and telecom giant Videsh Sanchar Nigam Ltd., banking more than $2.5 billion in the process.

So many Indians were surprised--and dismayed--when Shourie's progress ground to a halt in September. He had been gearing up to sell two of the country's largest gasoline refineries and retailers: Hindustan Petroleum Corp. and Bharat Petroleum Corp. Then opponents of privatization won a three-month moratorium on further deals, saying that the country shouldn't give away its "crown jewels." Most analysts suspect the real reason was that Shourie had been too successful. His rapid sales had eliminated a valuable source of patronage for politicians accustomed to funneling favors through state-owned companies. "Shourie is incorruptible," says Surjit S. Bhalla, managing director of Oxus Research & Investments in New Delhi.

Now, Shourie appears to be back on track--and is picking up the pace. On Dec. 9, he told Parliament that the Cabinet had agreed to move forward again with privatizations. He won over opponents by agreeing to sell off minority stakes, rather than controlling interests, in some companies. And he promised to set aside privatization money for worker retraining and to sell shares in the two oil companies to employees at a discount. Shourie says he wants to unload up to a dozen more companies by the end of the current fiscal year in March. These include engineering-services firm Engineers India Ltd. and more of the state's remaining 45.5% stake in Maruti.

For next year, he has even bigger plans. He hopes to raise $700 million by selling the state's 51% stake in Hindustan Petroleum to a single strategic buyer, most likely another oil company. And to appease critics who say he's moving too fast, Shourie expects to offer part of India's 66% stake in Bharat Petroleum to the public, raising some $300 million. Ultimately, that offering should set a market price for the sale of a strategic stake later on, but Shourie declines to speculate on when--or whether--that might happen.

Despite the renewed progress, Shourie isn't ready to celebrate. The delay, he says, will take its toll on the economy. Shourie has raised almost $1 billion this fiscal year, but will fall short of his $2.5 billion target because of the suspended sales. "Now I do not know how much we can raise," sighs the former journalist and World Bank economist. The funding shortfall will hurt because India needs the revenues to help repay mounting government debt. More important, India needs to get laggard companies out of state hands to help them grow again and make them competitive in world markets.

In fact, Shourie sees more trouble ahead. The delay, and the weakness it exposed, means there will likely be another showdown with foes of privatization. "Any pause like this gives ideas to people that the government can be stopped," he fretted in an interview over a lunch of spicy lentils in his spacious office. "So not just privatization, but other reforms too, become that much more difficult to implement." Furthermore, the landslide victory by the ruling Bharatiya Janata Party in Dec. 12 elections in the state of Gujarat may again slow the process because party hard-liners tend to oppose reform. That could leave Shourie increasingly isolated.

Shourie says he's ready for the fight. And investors seem to be betting that he'll win. Stocks rallied 2.4% to a five-month high after the privatization logjam was broken. India's ability to transform its lumbering economy, rebuild dilapidated infrastructure, and become the global power it longs to be may well depend on Shourie's success.

By Mark L. Clifford in New Delhi, with Manjeet Kripalani in Bombay

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