Govt banks on PSB privatization to improve fiscal situation

Privatization in India resembles Godot in Samuel Beckett’s famous play ‘Waiting for Godot.’ Like Godot, it never arrives. There is a lot of talk and… well just that. No action. The theatre has begun once again with The Hindu reporting that the government speeding up the sale of four public sector banks (PSBs).

“The Finance Ministry is working to expedite the sale of stakes in four state-owned banks—IDBI Bank, Bank of Maharashtra, Punjab & Sind Bank and UCO Bank—with the aim of completing the disinvestment process in the current fiscal” (https://www.thehindu.com/business/Industry/centre-targets-psbs-stake-sale-by-march/article32388220.ece).

The charade has started and ended so many times that one fears that no sale would ever happen, let alone the current fiscal.

At the heart of the issue is the lack of conviction and enthusiasm for privatization. Privatization is the most visible rollback of state from the economy; by selling a public sector undertaking (PSU), government proclaims loud and clear that it is leaving that space for private enterprise to step in, that it is limiting its role in the economy. In fact, in the run-up to the 2014 general election, Prime Minister Narendra Modi did say that the business of government is not business.

But the pink deep state—comprising policy and decision makers steeped in Nehruvian socialism—is opposed to this principle. This is the reason that there is no ardor or eagerness to sell off PSBs and PSUs.

So selloff announcements are regularly made. Civil Aviation Minister Hardeep Singh Puri said yesterday, “We are going to the cabinet tomorrow with further airport privatization plan. We have got many more airports lined up—dozens of them.”

Then there is Air India, which the government has tried to sell so many times—to no avail.

As mentioned earlier, the privatization efforts are the result of compulsion rather than of conviction. PSBs, for instance, need massive recapitalization. Decision makers know that recapitalization is not the answer, for the fundamental problem is government control; this is the reason that various tranches of recapitalization have failed to revive PSBs. But so strong is the pink deep state, and so Left-dominated is public discourse, that no government has been able to garner courage to privatize PSBs.

The current move to sell state-run banks is the result of empty coffers. Even before the outbreak of the coronavirus, public finance was in a mess; the lockdown has made the situation infinitely worse. The gains of PSB sales will be twofold: no recapitalization and some revenue for the exchequer. Hence the spate of selloff announcements.

We hope that the government brings the announcements to fruition..