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Tuesday, 5 February, 2002, 17:56 GMT
Boost to India privatisation
VSNL web site
VSNL's monopoly on long distance telephony will end in March
By Sanjeev Srivastava in Delhi

The Indian Government has sold controlling stakes in two major state firms.

The bidding process was fair and open and the highest bidder has taken the cake

Privatisation Minister Arun Shourie
The government announced on Tuesday afternoon that Tata group was the winner of a bid for 25% stake in the telecom giant VSNL.

And Indian Oil Corporation successfully bid for a stake in IBP, which runs a chain of over 1,500 petrol stations across the country.

The two deals represent a major boost to India's faltering privatisation process.

Privatisation minister Arun Shourie also announced that stakes in two refineries, Hindustan Petroleum and Bharat Petroleum, could come up for sale in three months' time.

VSNL deal

Mr Shourie told journalists after a meeting of the cabinet committee on disinvestment in New Delhi that the Tata group would pay Rs14.4bn (208m; $306m) for its stake in VSNL.

VSNL is one of the country's largest internet access providers.

However, its monopoly on long distance telephony will end in March, increasing competition in the sector.

Reliance Industries (RIL), India's largest private sector company, failed to win a a stake in either VSNL or IBP.

Other failed bidders for IBP include oil multinationals like Shell and Kuwait Petroleum.


Mr Shourie defended the decision to sell the stake in IBP to another public sector oil company, Indian Oil Corporation.

"The bidding process was fair and open and the highest bidder has taken the cake," he said.

The sale of government stake in VSNL and IBP - both profit making state run companies - is seen by many as the most ambitious attempt by the Indian government to kick-start its decade old privatisation programmes.

The government is considering selling stakes in companies such as Hindustan Zinc, Hindustan Copper, Shipping Corporation of India and National Aluminium.

Missed opportunities

The absence of a clear road map on privatisation, labour problems and political opposition had combined to render the disinvestment programme more a story of missed opportunities in the past.

In recent years, the government has sold its stake in Bharat Aluminium Company (BALCO) and loss making breadmaker, Modern Foods.

In the last few months the government has sold its stake in computer software and maintenance firm CMC as well as telecom gear maker, Hindustan Teleprinters.

The government now appears to be more willing to sell strategic stakes in companies.

Its privatisation programme is crucial to its attempts to bridge the fiscal deficit - estimated to be nearly 4.7 % of India's GDP in the current financial year,.

Missing targets

In the past 10 years the government has raised Rs207bn through sale of its assets in state owned companies, less than half the targeted amount.

The government was forced to cancel the high profile privatisation of the national carrier- Air India last year, in part because of the aviation industry crisis following the 11 September attacks in the US.

"If the government was nimble footed the situation could still have been saved by offering a bigger stake and more control to bidders wanting a share in Air India," investment analyst Sushil Chowksey told the BBC.

"But precious little was done by the government and finally it had to suffer the embarrassment of having no bidder for the country's flagship airline."

Suzuki stymied

It is somewhat a similar story in Maruti, India's number one car company.

The Indian Government is a joint shareholder in the company with the Japanese auto company, Suzuki.

For many years Suzuki has been keen to buy the government stake in the company.

Prolonged negotiations has meant that the government won't be able to sell Maruti for as much, given that its share of the car market has fallen from 80% to 60% in recent years

Satyajit Lahiri, marketing manager at AT Kearney
"I think they (the Indian government) have actually done a pretty good job"
Kishore Chaukar, Tata Industries
"We would like VSNL to become a major international service player"
MA Bhattan, Indian Oil Corporation
"We have only 40% of the retail trade"
See also:

13 Dec 01 | Business
Power giant to quit India
14 Dec 01 | Business
VSNL in giant shareholder payout
05 Feb 02 | Business
Slow growth threatens India's poor
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