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India’s New Government Slows Privatization

By Kumar Amitav Chaliha

MUMBAI (KWR) India’s new Congress Party-led government says it is scrapping the country’s privatization ministry and plans to retain control of the country’s leading state-owned companies, including several large oil firms.

Announcing the government’s new economic policy program, Prime Minister Manmohan Singh said that the Ministry of Disinvestment, which handled state company sell-offs, was being abolished, with functions taken over by the finance ministry.

He added that the top nine state companies — including Indian Oil Corp. (IOC), Oil and Natural Gas Corp. (ONGC), Hindustan Petroleum and Bharat Petroleum — would remain in government hands. However, later comments suggested that the sale of minority stakes has not been ruled out.

The planned privatization of Hindustan and Bharat was blocked by legal challenges last year, but the former government proceeded with other sales of stakes in energy companies in March. These included the $2.3 billion sale of shares in upstream producer ONGC.The Congress-led alliance is relying on leftist allies to form a government. India’s largest communist party had described the disinvestment ministry as “unnecessary” and said that it would oppose the sale of profit-making firms.

The common minimum program, the new government's roadmap to economic and social policies in the next five years, emphasizes a review of the reformist Electricity Act passed by the previous government and calls for delay in the restructuring of state electricity boards. It does, however, offers the private sector a role in power generation and distribution.

The ruling coalition also said that it plans to retain majority control of state-run banks, continue with food and fertilizer subsidies, and promote foreign investment to help create jobs.

The government has agreed to pursue reforms in a bid to place the economy on a 7%-8% growth rate, according to the common minimum program document. “Generally, profit-making companies will not be privatized,” the policy document said. Singh, however, said there was no bar on even profitable state firms selling minority stakes. “We have to distinguish between privatization and disinvestment,” he told reporters after the policy announcement.

Initial market concerns about the change of government have eased since it became clear that the new coalition, while slowing privatization, would adhere to economic reforms.

Editor: Dr. Scott B. MacDonald, Sr. Consultant

Deputy Editors: Dr. Jonathan Lemco, Director and Sr. Consultant and Robert Windorf, Senior Consultant

Associate Editor: Darin Feldman

Publisher: Keith W. Rabin, President

Web Design: Michael Feldman, Sr. Consultant

Contributing Writers to this Edition: Scott B. MacDonald, Keith W. Rabin, Robert Windorf, Sergei Blagov, Darrel Whitten and Jonathan Hopfner

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