Realism tempers govt’s move on privatisation

Finance Minister Nirmala Sitharaman, in her reply to the insurance amendment Bill in Lok Sabha on March 22, explained that there were far more private players in the insurance sector and raising the limits of foreign investment from 49 to 74 per cent was meant to help these players. She said that the IPO (initial public offering) of Life Insurance Corporation (LIC) was meant for the Indian public to buy shares in it.

She was deflecting criticism that LIC is being pushed into the private sector as part of Prime Minister Narendra Modi’s new drive to privatise the economy and keep the government away from business.

The next day, while replying to the discussion on the Finance Bill, Sitharaman said there was no question of privatising the public sector banks because the government considers the financial sector to be strategic, and the public sector banks, as part of the strategic financial sector, are out of bounds for private players. She said the government may merge public sector banks to make them viable, but that is all there is to it.

And she admitted member Pinaki Mishra’s point that the government failed to meet the target for disinvestment in 2019 and said that this was due to “tepid markets”. The minister also hoped that the disinvestment target would be met in 2021.

There is more than a bit of handwringing in the statements of Sitharaman. The clarion call of the Prime Minister for privatisation seems to be just that — a clarion call. The Finance Minister’s statements indicate that there is no rush to privatise the public sector in a blind rush of adrenaline.

The cheerleaders of liberalisation in the media and elsewhere had praised Modi and Sitharaman in uttering the magic word of ‘privatisation’ instead of the bureaucratic ‘disinvestment’. The government’s view on the issue seems to be nuanced, as it should be. But the pressure and the temptation remain to get rid of the public sector because it is seen as the evil symbol of socialism. Of course, the government, even the Modi government, knows better than to listen to the immature market enthusiasts.

In one of her post-Budget interviews, Sitharaman had indicated that the Prime Minister wanted to avoid the extremes of a full market economy or an economy dominated by the public sector. This has indeed been the policy of the cautious, even suspicious, market reformer of them all, PV Narasimha Rao. He was no great fan of the market economy, but he knew that market must get enough play to deal with the crisis that he faced in 1991. Manmohan Singh, in his decade-long tenure as Prime Minister, followed the same cautious path, though he did appear to be a little more adventurous than Rao.

Prime Minister Modi and his colleagues do imagine themselves to be pioneers of a market economy, but in practice, they have no option but to tread the muddled middle path of falling back on the ballast, that is the decades-old public sector born out of the socialist chrysalis. With all their faith in the private sector and its wealth creators, Team Modi knows that the public sector remains an essential bulwark and that you cannot dismantle it overnight.

It is for this reason that Sitharaman had no hesitation in setting up the Development Finance Institution (DFI) or the Infrastructure Investment Fund because she acknowledged that public sector banks cannot support infrastructural projects with their long gestation, and that the public sector banks should deal with only short-term loans.

There is the painful awareness that India is a developing, and not a developed, economy. Of course, the Congress can always be blamed for this, and it affords the BJP leaders, including Modi, Sitharaman and others, to go ballistic against a decimated Congress. It also serves as a good excuse for the slow progress of the Modi government on the economic front.

In the long term, however, it would be better if the Modi government could spell out its privatisation policy. It could declare that not the whole of the public sector is up for sale, and to the extent possible, it should say what the ‘strategic sector’ is. Is an oil marketing company like Bharat Petroleum Corporation (BPC) part of the strategic sector? It can be argued that the whole of infrastructural sector does not form a part of the strategic sector, and that makes sense too. Is defence production a part of the strategic sector? What then are the rules for private sector participation in this segment? It has for long been felt that the private sector has a greater role to play here. And through the years, India’s defence imports have been from the private sector in countries like the United States, Great Britain, France and even Israel.

It would indeed be a good idea if the public sector withers away, and the whole economy is fully in the hands of the private sector. But it is quite clear that at the moment, the private sector in India is not in a position in terms of technology and finance to serve the strategic needs of the country. Of course, the Congress can be nailed as a culprit for this. But it will take time for the private sector to shoulder the responsibility of serving as a strategic shield for the country.

It is then advisable that neither the government nor the supporters of the market economy should speak loosely and loudly about privatisation. It might sound attractively bold, but the reality is both complicated and untidy. Sitharaman’s piecemeal clarifications point to this inescapable fact.