Theres Need For Takeover Norms For Regulators, Too

Updated: Mar 26 2004, 05:30am hrs
The IDFC has been a successful example of public-private partnership in the infrastructure sector in India. The worst that the government can do to disenchant such an effort is interfere with its autonomy. This calls for regulations for the regulatory body and defining the takeover code. This can be justified if one draws parallels to stringent norms being placed for the private sector to acquire a major stake in existing private corporate. All this indicates that the government does not seem too keen on good corporate governance despite all its hard work to bring in the same for private players. The taking over of management control without prior approval of the existing board goes against the basic philosophy of corporate governance.

The protest of the CEO and the directors of IDFC who submitted their resignations to revolt against the governments move to transfer of 15 per cent stake of RBI (reason being given is conflict of interest of the regulatory body) and merge IDFC with SBI seems to have failed. Confrontation is definitely not a solution but it is a way to express ones anguish.

The alternate arrangement of the government to take over RBIs stake (reason being given is conflict of interest for the apex bank) gives an impression that the IDFC top brass have jumped the gun. The option of taking over control from the private body to the public sector would have dra-wn criticism with regard to its current drive of disinvestment of major PSUs and its effort to ensure gradual transfer of the management and control of the activities to the private body.

The governments move has been justified by allegations against IDFC for not funding infrastructure projects but deploying the funds in treasury management. Nevertheless, the efficiency of fund management can be gauged by just 1 per cent NPA (non-performing assets) to its total advances of over Rs 5,000 crore.

The basic issue, which prompted the finance ministry to push for re-alignment of IDFC, was the poor record in core sector funding. Many agree that the demand for funds from these sectors have been tranquil during last few years.

The experience of the rest of the world has been that solutions for financing and managing infrastructure and public services are becoming increasingly complex. Faced with these challenges, public authorities are being forced to come up with new solutions and approaches involving other players. Roles that are well defined for the public authority concern the definition of objectives and supervision of service performance. The government has harmed its own image by portraying two different plans within a span of few days. The assurance on preserving the private sector character of the infrastructure financing company either by transferring the stake from RBI to SBI or GoI, and endorsement of the same by existing largest stakeholder, the foreign shareholders (they owns 40 per cent equity), will not be treasured.

The rationale being given is that the government will utilise the appraisal skills of the company and use it as a vehicle to operationalise the Rs 50,000 crore infrastructure fund, proposed in the interim budget. The proposed fund will not have a corpus but will be raised as and when projects are identified. However, the evaluation of the project proposals would certainly need the expertise and efficiency of the private entity.

The writer is deputy director, IMC Economic Research and Training Foundation, Mumbai. The views expressed here are personal