Maruti's dream debut has been hailed but doubts remain on pace of reform The spectacular divestment of the Indian government's stake in car giant Maruti Udyog has energised the country's sluggish stock market and put the spotlight back on its slow and painful privatisation programme. But even as elated financial managers hope that Maruti's dream debut on the Bombay Stock Exchange last week will turbo-charge Prime Minister Atal Behari Vajpayee's fitful efforts at economic liberalisation, there is still deep scepticism in the nation's capital about the government's ability to circumvent the roadblocks to privatisation. 'In all this excitement, people are forgetting that Maruti started off in the early 1980s not as a typical government company, but as a 50:50 joint venture with Japan's Suzuki Motor Corp,' Business Standard managing editor Sunil Jain said. 'I doubt how far Maruti's successful privatisation will help Disinvestment Minister Arun Shourie deal with trickier, big-ticket items, such as the proposed sale of the Shipping Corp of India or of Hindustan Petroleum,' Mr Jain said. Management control of Maruti was handed over to Suzuki in May last year through the strategic sale of more than 4 per cent of the government's holding. Ordinary investors were offered a piece of the company a year later, when roughly half the government's remaining stock - more than 27 per cent of the outstanding shares valued at over US$213 million - was offloaded through an initial public offering (IPO). Further endorsement of the decision to privatise Maruti came when its scrip, listed for the first time last Wednesday, notched up record trading volumes and commanded a premium of nearly 40 per cent by week's end. As a result, bankers and analysts are predicting that Maruti's success will strengthen Mr Shourie, a former World Bank economist and newspaper editor whose zeal to sell off inefficient public sector behemoths has been repeatedly stymied by powerful ministers, bureaucrats and labour leaders. Indeed, a combative Mr Shourie quickly seized the moment and gained approval for the sale of residual government shareholdings in five other companies privatised last year, including telecommunications major Videsh Sanchar Nigam, now controlled by the Tata Group. Although elated by the stock-market frenzy, the man at the centre of India's privatisation campaign is far more cautious about what it means for the future. 'As far as disinvestment is concerned, we move from one obstacle to another,' Mr Shourie said. Former economic adviser to the government, Mohan Guruswamy said: 'People in government see these companies as family heirlooms that can be milked for personal or political gain.' According to Mr Guruswamy, most high-ranking ministers are opposed to privatisation, although powerful Deputy Prime Minister Lal Krishna Advani has chosen to remain neutral. 'With national elections due next year, I can't see how Mr Shourie can speed things up despite the Maruti success,' Mr Guruswamy said. The opposition Congress Party has already signalled it will make privatisation an election issue. Even as Maruti created a sensation on the stock market, the party, led by Italian-born Sonia Gandhi, passed a resolution opposing the sale of government companies. Ironically, even opponents of privatisation within the government are now trying to turn the success of Maruti to their advantage. They argue that the government should not sell a majority stake in the Shipping Corp to a strategic buyer, as already decided, but should instead go for a public offer, thus allowing the Ministry of Shipping to retain control of the company. But the success of Maruti's IPO is due to the fact that it is now managed by Suzuki, and not by a corrupt and inefficient government starved of capital. India belatedly and reluctantly took the road to public sector disinvestment nearly 12 years ago, but until January 2000, this amounted to no more than selling equity in companies that remained under the national government's control. Thanks to Mr Shourie's dogged commitment over the past 31/2 years, there have been strategic sales of 13 government-run companies and 22 hotel properties, raising about US$2.5 billion for the debt-ridden government. However, the sales are way behind target. The national government still owns about 240 companies, half of which lose money. The accumulated loss: US$11 billion. But this is only part of the story. Besides companies owned by the national government, state governments control a further 919 enterprises, which have lost nearly $5 billion. Only 33 of these have been privatised. Not many in government, it appears, are ready to heed the warning posted on the website of Mr Shourie's ministry. It is a quote from a 14th-century Arabic treatise, but still relevant in modern-day India: 'Commercial activity on the part of the ruler is harmful to his subjects and ruinous to the tax revenue.'