We Need to Make Sense of the Modi Government's Big Privatisation Push

The devil lies in the implementation and in putting robust protection around any disinvestment measure.

At a press conference in Chennai early August 2019, Union finance minister Nirmala Sitharaman was quizzed on the complaint by the Reserve Bank (especially Raghuram Rajan) that banks were not transmitting the interest rate reductions announced by the central banker. The minister butted in then to say that banks were slowly veering round to pass on interest rate reduction.

When asked if they were doing that on their own volition or due to a push from the government, she said that they were doing it partly on their own and partly because of the nudge from the government. When asked if the government could have done it a few years ago, she replied, “We did not have 340 or so then”.

What Sitharaman was hinting at is that a government with an absolute majority could now do what it could not in its first avatar.

Indeed, the latest budget in the midst of pandemic is a revelation of sorts. For, it signals, perhaps a  break from the past and bears the mark of a ‘right’ movement. No balancing this time. No pretext to keep the centrist stance.

Also read: LVB Merger and Banking for Corporates: Decoding the Churn

Successive finance ministers – be it in the UPA regime or NDA rule – have talked about disinvestment. The term disinvestment was consciously used by them to avoid any possible backlash while selling government stake in public enterprises. They painstakingly worked to ensure that their actions did not elicit an open challenge from a constituency which is capable of pouring cold water into their election arithmetic.

For the first time perhaps, a finance minister has used the term ‘privatisation’ in a budget speech. Nirmala Sitharaman has indicated that two public sector banks would be privatised. This is by far a significant announcement, giving a clue or two to the shape of things to come in the coming days, months and years.

The decision to push LIC for an IPO (initial public offer) and the move to let foreign insurance to have 74% control in insurance business further strengthens the Modi regime’s stance that that the government should not be in the business of doing business. It has reaffirmed its commitment to pull the government out of all non-strategic business and keep minimal presence in ‘strategic business fields’.

The shift to the right, now, appears to be happening at a faster pace.

The Modi government may be embarking on what it has ideologically committed to the people through its election manifesto. But the question is: is privatisation the lone panacea for the ills of the Indian banking sector? We have seen the fiasco at Yes Bank.

Also read: Why This Is Not the Right Time to Allow Corporate Ownership in Indian Banks

Prior to that we were witness to the troubles at ICICI Bank. In the not-so-distant past, we also had seen the happenings at Lakshmi Vilas Bank and Dhanalakshmi Bank. Governance is as much an issue for the private sector as it is for the public sector companies. Who will forget the great fall of Satyam Computers, an iconic name in the Indian software field once upon a time?

These failures – nay shenanigans – reflect the larger degradation of the value system, both at the individual and collective level.

A mere change in the name plate will be of no consequence. The move for establishment of a bad bank does indeed reflect a sense of keenness to clean up the books of the Indian banking industry.

At the post-Budget press briefing, the government indicated that the ‘bad bank’ – though it has sought to give it a different nomenclature – could be funded by banks and other financial institutions, with an assurance to people that the government too could infuse support.

Also read: It’s Budget Season. And That Means Talk of a ‘Bad Bank’ Yet Again.

More than anything else, the Indian banking industry is dogged by a combination of political interference, poor supervision, ambitious bosses and regulatory flip-flops. Many high profile defaults are often caused by a system which uses discretion at will. The government is also talking about housing the boards of insurance firms with majority independent directors. The private sector is replete with instances where independent directors remain so only for legal eyes.

Nevertheless, that cannot be a valid reason for the government to keep itself in any business. The devil lies in implementation of  intention and putting in robust protection around any measure. The idle assets of the government, according to her, will not do any good to Atmanirbhar Bharat. Consequently, the non-core assets – i.e. surplus assets with government, public enterprises and other wings of the establishment (very sizeable unit and value-wise) – could be put on block.

This could be unthinkable for any political class in the past to venture into.

Though there were calls from well-meaning experts for a cash transfer to the pandemic-hit people at the bottom of the pyramid, the Modi dispensation is steadfast in pushing a different course. Government officials have insisted that assets creation – not cash transfers – will not only create jobs but also help secure a proper financial future for the next generation.

What is ‘left’ in the move towards a ‘right’ direction?

Surely, a directional change is quite evident. How will this play out in the coming days? One thing is sure, the latest budget has enough fodder for left, right and centrist thinkers alike to recalibrate their thought process so as to carve out their space in the emerging politico-economic system.

K.T. Jagannathan is a senior journalist based out of Chennai.