Significant changes in regulation such as those relating to the capital market should, as far as possible, be for the common benefit of the regulated. They should not be framed so as to favour just one or few parties, however influential the latter might be. This salutary principle has evidently not been kept in mind when the capital market regulator recently authorised two additional methods of accessing the capital market. On the face of it, the two methods — Institutional Placement Programme (IPP) and Offer for Sale of Shares through the stock exchanges — offer companies flexible, cost-effective and less time-consuming options for accessing the capital market, specifically to meet the minimum public shareholding norms. But, although SEBI has not restricted these to public sector companies, it is obvious that the move is primarily intended to boost the prospects of the government’s disinvestment programme. Government finances are strained at this juncture. Aggregate public borrowing during the year is slated to exceed the budget target by Rs.93,000 crore. The public sector disinvestment programme, with a target of Rs.40,000 crore, has hardly made a beginning. The markets are subdued, and fresh share issues made in conventional ways are unlikely to fetch the right price. Should it disinvest now, the government will be accused of selling family silver cheap.
With hardly three months to go, the government is evidently driven by a sense of urgency to raise revenue. Some recent policy moves affecting the external economy — such as freeing interest rates on non-resident deposits and providing greater leeway for overseas borrowings — will have the effect of raising the level of short-term external debt and are, therefore, inconsistent with medium-term policy objectives. SEBI’s recent guidelines would enable the government to take one more short-cut. The IPP route will obviate the need for a government company to undertake a block deal or a follow-on offer for sale, such as the one made by CoaI India, to meet the listing guidelines. A handful of government companies will be able to place up to 10 per cent of their equity with institutional investors. The government might get the sale proceeds before March 31, but the retail investor will lose out since he will be totally bypassed. Successive finance ministers have waxed eloquent on making ordinary investors the bedrock of the disinvestment process and widening the ownership-base of public sector enterprises. Whatever the justification, it is clear that SEBI’s new guidelines do not serve the interests of even the disinvestment process.