Monopoly in manufacturing okay after divestment: DoD

BS Corporate Bureau

Taking forward its systematic plan of divestment and privatisation, the government has broadly framed a policy that will allow monopolies to develop in manufacturing industries as a result of divestment, while prohibiting monopolies in the services sector.

One consequence is that there will be no bar on companies acquiring assets divested by the government even if it results in a monopoly, provided the assets divested are in the manufacturing sector.

But should the assets be in the services sector, like in the airline industry or banking, the government will not allow the divested assets to go to a company if it results in it acquiring a monopoly status.

Department of divestment secretary Pradip Baijal explained that there could be no concept of monopoly in the manufacturing sector, especially after the recent WTO agreements. "Consumers can always bypass the monopoly by importing goods from abroad," he explained. But since services could not be imported in the short run, the government had to guard against monopolies, he said.

"Conceptually, we have no objection to the creation of monopolies in the manufacturing sector. We can ensure competition by keeping the product in the open general licence list and by having an appropriate duty rate," Baijal said.

But this is not the case with non-tradables such as services. "We need to have competition in utility services. The petroleum sector is a service sector and one cannot duplicate or bring petrol pumps to the country and so we have prohibited monopolies in the service industry," Baijal added.

In addition to the earlier caveat on the acquirer of IBP being banned from bidding for HPCL and BPCL when they come up for divestment, Baijal said the acquirer of HPCL would be similarly forbidden from bidding for BPCL and vice versa. He told newspersons, "We may not allow common ownership in HPCL and BPCL." The Cabinet would take a final decision on the issue soon, he said.

Last week, the government prohibited IOC, which had successfully acquired the government's 33.58 per cent equity in IBP, from bidding for HPCL or BPCL.

The immediate fallout of the government's stance is that Reliance Industries can acquire Indian Petrochemicals Corporation if it emerges as the successful bidder on price, and can monopolise the petrochemical industry, because it is in the manufacturing sector.

Baijal specifically confirmed that the government policy would have no objection to Reliance taking over IPCL, if it was the successful bidder.

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