War threat no block to India's reform push


Labor disputes marred the privatization process in India last year, with workers fearing lost jobs

By Alex Frew McMillan

HONG KONG, China (CNN) -- The dispute with Pakistan will not derail India's privatization drive, according to the cabinet minister overseeing that push.

India will sell off 27 to 30 companies by the end of March 2003, Indian Minister of Disinvestment Arun Shourie told CNN.

"Those who are investing in these companies will have a much longer horizon than a war," he said on Wednesday, speaking on the sidelines of an investment conference in Hong Kong.

The privatization drive has picked up in the last five months, the cabinet minister said, raising $1.5 billion from the sale of seven companies.

'Typhoon' no reason to stay away

All told, India has sold off 22 companies in the last 18 months, raising more than $2 billion.

A war between India and Pakistan would hurt the economies of both countries, Shourie conceded. He also said it would have untold consequences for Asia, likening it to a "typhoon" (full story).

But he said the global economic slump will not prevent privatization pushing ahead in India, and neither would war.

Poor stock performance worldwide has left cash-strapped CEOs wary of doing deals. But Shourie said there is no perfect time to push reforms.

"How can you tell that in six months, the stock market won't be worse?" he asked.

Slow pace takes heat

Many observers fault the slow pace of economic reform in India. Critics cite red tape and layers of bureaucracy as to why India is losing out on overseas direct investment.


Shourie is visiting Hong Kong as part of an investment conference but spoke to CNN on the sidelines

China, the world's most populous nation, is the largest target of overseas funds in Asia. But India, the second-most populous, has struggled to find anything but Indian buyers for its companies.

Those overseas buyers it attracts are typically of Indian ethnic origin, such as the London-based Hinduja brothers.

Companies such as Shell have bid on raw-materials companies, but have so far not won. Some Indian hotels have gone to offshore buyers.

Shourie maintains the lack of overseas interest has nothing to do with military and ethnic tension in the region.

"The bidding has been highly competitive," he said. "Nobody involved in the privatization process talks about tensions [with Pakistan]," he said.

No point in Air India sale now

Even before September 11, the government was forced to shelve the sale of a major stake in Air India when bidders dried up (story on bidders dropping).

That sale has now been scrapped altogether, barring a rebound in the airline industry and a change in investor sentiment.

There are signs of a recovery in Asian business and tourism travel. Japan Air Lines forecasts a return to profit next year, and Hong Kong's main carrier Cathay Pacific has been ramping up hiring.

But Shourie said it was senseless to put the Air India investment out to bid again, when the market does not appear to want it (story on sale's end).

"There's no point proceeding with something that didn't succeed," Shourie said. "The air industry is in the doldrums."

As proof of reforms, Shourie cited the sale of a majority of raw-materials company Paradeep Phosphate Ltd. That led to a tripling of revenues in 45 days.

Support for reforms is growing in the labor movement, he stated. He brushed off criticism that India is selling off assets below their fair market value or eliminating jobs by privatization.

"There is never a right time," he said.