Privatisation, like any other economic reform, runs into stiff resistance—from the respective administrative ministries, unions, intellectuals, the Left, even the Right.
Much has been said and written about Budget 2021-22, but one aspect has not received the attention it deserved: its commitment to privatisation, the boldest reforming measure. In theory, Finance Minister Nirmala Sitharaman has put almost all public sector undertakings (PSUs) on the block, including the ones in the “strategic sectors,” something that even the Atal Bihari Vajpayee government didn’t do despite it being most active in selling off PSUs. How the Budget’s noble intention translates into reality remains to be seen.
Privatisation is the boldest reform because by selling a company it owns, government most visibly decreases its intervention in the economy. It also reposes faith in the private sector. This helps augment enterprise value of the company, returns to the shareholders, and thus corporate tax realisation. Further, it shields the taxpayer from the bailouts, which government has to announce.
In her Budget speech, the Finance Minister said, “Other than IDBI Bank, we propose to take up the privatisation of two public sector banks [PSBs] and one general insurance company in the year 2021-22. This would require legislative amendments and I propose to introduce the amendments in this session itself.”
On the face of it, this is as good as it gets, for bank privatisation is urgently needed. Successive governments have spent lakhs of crores of rupees in recapitalisation—with little result. Banking is still ailing. For the next fiscal too, Sitharaman has to make provision for infusion of government fund to the tune of Rs 20,000 crore.
Bringing PSBs within the purview of selloff, however, the Narendra Modi government has certainly broken new ground. Even former disinvestment minister Arun Shourie under Vajpayee couldn’t try to privatise PSBs, as they were kept outside his remit.
Sale of PSBs is not a solution to banking woes; it is the solution. It is the sine qua non of recovery in banking, indeed in the economy. State or national ownership of banks appears appealing in theory, but not so when we also have a look at the reality. For in practice, the state or nation means politicians and bureaucrats, surely not the most scrupulous and efficient people.
The natural consequences are concentration of economic power, the politics-business nexus, loan melas, evergreening, growing non-performing assets (NPAs), etc. PSBs have been the victims of all these and more. Among the beneficiaries were crooked businesspersons like Nirav Modi and Mehul Choksi.
The impact on the economy has been severe. It is well known that even before the outbreak of the coronavirus and the ensuing nationwide lockdown that took growth in the red zone, the economy was suffering. A critical factor was the bleeding banking sector, dominated by PSBs, which had been drawn into a vicious cycle: banks were not able to lend before of their own weaknesses, thus adversely affecting the economy; the economy, in turn, was not doing well because of the anaemic banks.
The Vajpayee regime had characterized certain sectors as “strategic” at that time, which included railways and defence.
No longer. The Finance Minister said, “In the Aatmanirbhar package, I had announced [last year] that we will come out with a policy of strategic disinvestment of public sector enterprises. I am happy to inform the House that the government has approved the said policy. The policy provides a clear roadmap for disinvestment in all nonstrategic and strategic sectors. We have kept four areas that are strategic where bare minimum CPSEs [Central public sector enterprises, also called PSUs] will be maintained and rest privatized. In the remaining sectors all CPSEs will be privatized”.
All this is very good—in principle. In actual practice, privatisation, like any other economic reform, runs into stiff resistance—from the respective administrative ministries, unions, intellectuals, the Left, even the Right. Comrades and fellow travellers accuse the government of “selling family silver to pay the grocer’s bill,” “handing over national assets to capitalists,” etc.
The deep pink state—comprising pinkish bureaucrats, policy makers, experts who read and internalized the Marxist theories in schools and universities—strike back. This is the reason that no major PSU has been privatized during the Modi 1.0 regime. BPCL was sold, but to another PSU, ONGC. The efforts to sell Air India have failed so far because the terms were preposterous.
The Finance Minister, however, is optimistic. She said, “In spite of Covid-19, we have kept working towards strategic disinvestment. A number of transactions, namely BPCL, Air India, Shipping Corporation of India, Container Corporation of India, IDBI Bank, BEML, Pawan Hans, Neelachal Ispat Nigam Limited among others would be completed in 2021-22.”
We can only hope that this happens.
Ravi Shanker Kapoor is a freelance journalist.