India shelves airline sale in privatization push


There have been periodic strikes against privatization in India, such as the general strike that brought Mumbai's trains to a standstill in April

By Alex Frew McMillan CNN Hong Kong

HONG KONG, China (CNN) -- India will be forced to shelve its attempts to sell off a large stake in Air India, a top planning official said on Tuesday.

But the country is pushing ahead with plans to offload part or all of 48 other government-owned companies in the next 12 to 18 months, N.K. Singh said at the East Asia Economic Summit here.

"We are in the business of privatization," Singh told to CNN on the sidelines of the forum, adding that the government was committed to its timetable.

Losing a race

Within India, opponents of privatization say the scheme will lead the government to sell off assets below their value. But despite a torrid time for the world's stock markets and the threat of global recession, India will continue its plans.

India has effectively lost out on the race for overseas investment with Asian countries such as China. Many multinationals skip the subcontinent, put off by red tape and the collapse of Enron Corp.'s Dabhol Power Co. investment, the largest by an overseas company in India.

Singh noted that India is likely to grow at 5.5 percent this year, possibly 6 percent - one of the strongest rates in Asia. The country is slightly protected from the global slowdown because of its low level of exports, which stand at just six percent of the country's output.

But that's not enough, Singh said. "We are not satisfied with 5.5 percent to 6 percent growth," he explained.

An aggressive pace

The government hopes to see the average income in India double over the next decade. That aggressive target requires the country to hit a growth rate of 8-8.5 percent in the next five years, Singh said.

That will come through developing India's telecommunications infrastructure, its transportation -- especially roads -- and its power industry.

It will also come with closer ties between India and its Asian neighbors. Since 1985, when the leaders of the seven South Asian nations first met, there has been a regrettable lack of progress on that front, Singh said, despite 10 summits.

South Asia countries such as India and Pakistan have typically focused on lowering trade barriers and reducing tariffs.

To foster growth, "we have to go further," Singh said. "We must look beyond trade." He hoped closer ties with Pakistan would not be "held hostage" by the tense political relationship between the two nations.

India reshaping itself

But privatization will also play a major role, as India tries to reshape itself. The government will keep trying to sell state-owned companies, Singh said.

One of the key sales, a 25 percent stake in overseas-telephone monopoly VSNL, goes on the block over the next few months. Several tourism and hotel companies are also up for grabs.

Singh noted the government recently sold off stakes in two companies, Hindustan Teleprinters and computer CMC, to the Tata group.

That group, India's largest conglomerate, was one of the original bidders for a 40 percent stake in Air India. But even before the events of Sept. 11, its partner Singapore Airlines pulled out of the running.

The earlier withdrawal of the Hinduja group left no other bidders in the running. The Tata group had approached Delta and Air France, which had expressed earlier interest in Air India.

But the aftermath of the terrorist attacks in the United States has brought many airlines to their knees or left them in dire trouble. Faced with that situation, the government will not push its sale any further, Singh said.

Singh said it was possible the government would have to shelve other privatizations if the reserve price was not met.