India: Avoiding the p word

Last June, India's new finance minister, Yashwant Sinha, promised to speed up privatization and said a majority stake in ailing domestic carrier Indian Airlines would be sold. No finance ministers had yet dared to make a public commitment to privatization; they had all used the more politically correct word - disinvestment. By December, paralysed by a fractious coalition government and his party's drubbing in the regional elections, Sinha had managed to sell only a small stake in a rail-freight company for $53 million. In January, as he prepared this month's budget, he had few options left to plug the large deficit.

Sinha first approached the large Indian development banks to buy shares in state companies and warehouse them until they could be sold at a higher price in the domestic capital market. That fell through since the banks did not agree to his terms. He then turned to the large oil...