Could the government have avoided the sticky situation it finds itself in over the disinvestment of its residual shares in Hindustan Zinc Ltd (HZL)? It could, if it had repealed the Metal Corporation (Nationalisation and Miscellaneous Provisions) Act, 1976, before embarking on the disinvestment.
Could it have foreseen that something like this would ever happen? Of course it could.
In October 2014, this writer had started an article on the need to repeal sundry nationalisation laws thus:
“So the government is all set to kickstart the disinvestment programme, which was all but stalled during the ten years of United Progressive Alliance (UPA), by offloading its remaining 29.5 percent stake in Hindustan Zinc Ltd (HZL).
But could a legal snag trip it up? It could.
Someone could challenge the disinvestment in court saying the company was incorporated through an Act - the Metal Corporation (Nationalisation and Miscellaneous Provisions) Act, 1976 – and so the government needs a green signal from Parliament before going ahead.”
This is not to boast about how prescient this writer is. It is just to point out that the government could easily have anticipated this.
After all, finance minister Arun Jaitley (under whose jurisdiction the disinvestment department falls) was an important minister in the first National Democratic Alliance (NDA-1) government, during the tenure of which the strategic sale of HZL took place.
Two other planned privatisations of that government – that of Hindustan Petroleum Corporation Ltd (HPCL) and Bharat Petroleum Corporation Ltd (BPCL) – were scuppered by the Supreme Court in 2003, on the grounds that the relevant nationalisation acts needed to be amended first (the details are there in the earlier article).
The Supreme Court gave this judgement on a public interest litigation (PIL) against disinvestment in the two oil companies filed by the Centre for Public Interest Litigation headed by Prashant Bhushan who, interestingly, is the advocate for National Confederation of Officers' Associations of Central Public Sector Undertakings which has now challenged the HZL disinvestment.
So Bhushan acted upon the wisdom gained in an earlier case (according to news reports, he pointed out to the Court that the earlier strategic sale of HZL was a violation of the law) while the government was caught napping.
The other reason why the government should have anticipated this roadblock was something that happened during the UPA government. The disinvestment department (under P. Chidambaram) too had proposed the minority stake sale in HZL but the mines ministry had raised the same point about the legal backing for this. This had been reported in the newspapers at that time.
Fortunately, some roadblocks to future strategic sales or even piecemeal disinvestment are close to being removed. The Repealing and Amending (Third) Bill, 2015, which has been passed by the Lok Sabha, repeals close to a dozen nationalisation laws, including those relating to BPCL and HPCL.
But the Bill faces the Rajya Sabha hurdle. It’s a pity that the government had not put all these nationalisation laws in the first two repealing and amending bills that have been cleared by both Houses of Parliament.
Now that the Supreme Court’s stalling of the stake sale has put the government in an awkward position, will the Congress, which has taken an unapologetically socialist turn, allow these nationalisation laws to be axed? Unlikely.
When it is not yielding on an important reform like the goods and services tax (the government has accepted two of its three demands), it is hardly likely to give in on a relatively smaller issue, especially when it knows that this can throw disinvestment receipt targets out of kilter and make the task of fiscal consolidation that much harder.
By not acting fast enough on this matter, the government is caught in a bind. How it manages to overcome this problem will be interesting to watch. But it will need to find a way out. The government needs to get out of a host of public sector undertakings, not just for the sake of raising revenues but because it has to concentrate its energies on other things which businesses cannot do.