How worried should we be by the decline in India's and Pakistan's relations?
My own assessment is that it's a very serious situation. The question is how long we can sit back when our people are getting killed. In other countries, a few hundred are killed and the US feels it is appropriate to act. In our case over 61,000 people have been killed by terrorists. Little children are being gunned down. How long can we go on like this?
I believe that the outcome will depend on America's response and what America does. The US certainly has every lever for disciplining Pakistan. If it uses those levers then things can swiftly revert to the normalcy we are accustomed to. But if the US keeps it's current policyà Pakistan is closing all options for India.
What can the US do?
I feel that the US and Western governments made a fatal mistake when they rescheduled $4 billion of Pakistani debt in December. Because Pakistan is a one tranche country. They never live up to the conditions of the IMF, but each time because of political considerations, the next loan is given, and the IMF hypnotises itself that, yes, this time they will live up to the conditions.
Pakistan was at the brink of default, and has been for one and a half years. That was the lever that should have been kept in hand and extended only by six months at a time. But because that debt was rescheduled, Pakistan has been able to use the resources for other things. Economic pressure is required.
Is India so politicized right now, that economic reform is off the agenda?
No. In this very last week I have privatized two companies that have raised over $1 billion. As of yesterday we have received bids for five hotels. In July we are privatizing the Shipping Corporation of India.
India is a continent. If Italy is mired in some scandal; Germany gets on with something else. So it is in India.
You mean to say that the current situation won't in any way stop or slow down the process of privatization?
I wouldn't be that extreme, because we don't know where the current situation will go. These situations can have untold effects.
Are you worried it might affect the price you will get for assets?
The bidders in India will look to a 20 year horizon. They are acquiring a very large enterprise, such as an aluminum company producing a thousand tonnes of aluminum a year; or a zinc company.
We are not going to sell an enterprise until it crosses a reserve price, and we don't set a reserve price looking at this week's incidents. We look at a stream of income that will come from it, and look at the value over the life of the enterprise.
So if a reserve price wasn't met you would scrap a sale?
Yes, the Cabinet has done this. Although in one instance we decided to go ahead with the sale even though the bid price was slightly below the reserve price. That's because the company was haemorraging so much, and so we sold it.
We don't disclose the reserve price and that is why sometimes we get a lot more. In one case, the Reliance Group paid 80% more than the reserve price.
What is the situation with the sale of Air India and Indian Airlines?
The finance minister is releasing funds for them to renew and expand their fleets, so that when the privatization process recommences, these companies will be in much better shape than they are today.
The government's budget has a target for disinvestments, but do such targets make your job harder?
With great respect to the budgetary estimates, I regard them as indicative estimates. After all, my ministry is working on the sale of 30 enterprises. We are confident we can do 30. But we don't know what the bid prices will be û so for us to give a figure is problematic. In India the government should be announcing less and doing more. If we announce a figure, then people just say we have not met it.
Is it actually damaging to name a number, when indeed so often it is not met?
I would much rather it was not named, and the finance minister agrees û but he has to indicate a figure in his budget. And indeed, if we beat the number, people in India will just accuse me of distress sales.
I would like to point out that we have achieved PE ratios for our sales ranging from 11 to 89. In the last month we have raised $1 billion, so our $2.3 billion [government] budget target for the year is not that big a figure.
Tomorrow: Shourie discusses the politics of privatization in India, and why consensus is building that privatization is a good thing.
