Union Finance Minister Nirmala Sitharaman has come out with her own privatisation policy which would shrink the number of government-owned companies and banks from 400 to a maximum of around 50 companies. If the policy approved by the Narendra Modi Cabinet gets implemented as per the time span given in the Union Budget, the process to contract public sector would be completed in 2026.
Though the Finance ministry has shied away from naming the money that would be earned by the government through selling and merging more than 300 companies, estimate ranges from Rs. 10 lakh crore to Rs 20 lakh crore. Her plan is as ambitious as that of Manmohan Singh, who in his path-breaking reform budget of 1991 had announced disinvestment as a method of trimming the public sector and earning much-required money. Singh's successor P Chidambaram had in 1996 even set up a Disinvestment Commission to advise the short-lived United Front governments on selling stakes in the government companies to take advantage of an active stock market.
But for three decades, even when successive finance ministers argued for cutting the public sector fat, politics has intervened strongly, especially as the country had coalition governments, many of them with outside support from 1989 to 2014. Politics always interfered with the pure economic objectives, thus affecting the plans of Singh, Chidambaram, Yashwant Sinha, Jaswant Singh, Arun Jaitley, and now it is to be seen how Sitharaman will be able to withstand the opposition to large-scale sale of public sector companies.
Limiting to a dozen
The Cabinet policy however says the government will have a bare minimum of government companies in 12 strategically important sectors - atomic energy, space, defence, transport, telecom, power, petroleum, coal, other minerals, banking, insurance and financial services. Officials have said there will not be more than four companies in each sector. Now there are 12 public sector banks and it means within five years eight of them will have to be privatised or merged into larger banks. Sitharaman has stated this year itself two banks and an insurance company will be sold.
Poor response except in Andhra Pradesh
The political response has been muted except for strong reaction in Andhra Pradesh over the proposal to privatise the Rashtriya Ispat Nigam, also known as Vizag Steel, which runs the 7.3 million tonne steel plant and employs 20,000 workers. The local legislator has offered his resignation opposing the privatisation move. Andhra Pradesh Chief Minister Y S Jagan Mohan Reddy has proposed a few measures to keep the profit-making company in government hands. But the political philosophy of the BJP does not support intra- governmental transfer of companies. From Jana Sangh days, the party had opposed the nationalisation of private companies by Jawaharlal Nehru and Indira Gandhi governments, and had promised to give full play to the private sector in economic development. Many of the tycoons who lost their companies in the areas of shipping, insurance, banking, textiles and other sectors had become strong supporters of Jana Sangh which argued for an alternative to the socialist economic policies of the Congress.
Response of trade unions, OBC MPs
The trade unions have made statements opposing the policy and have spoken of calling for strikes. Compared to earlier decades when a national trade union strike could cause a serious disruption, nationwide strikes have lost the traction of late due to the expansion of job opportunities in the manufacturing, service and informal sectors.
On another level, there is discussion among the dalit and OBC members of Parliament on how this spree of privatisation, which may later affect even very large employers in the government like the Railways and the Life Insurance Corporation of India would affect the affirmative policy of reservations which is not available in the private sector. The dilution or ending of reservations could become an emotive issue among MPs representing these communities, whose number is sizeable in the BJP-led National Democratic Alliance itself. Its key partner Janata Dal (United) insists it is a champion of social justice. But if the government were to privatise without disturbing reservations, then there will be hesitation among investors, both Indian and foreign, as they would lose control over the key aspect of managing their human resources. The government's insistence on providing job security to existing Air India employees had been one of the dampening conditions for investors.
How to convince the MPs
The government needs its political skills to manage the planned diminishing of the public sector, especially as these companies have large plants in more than 100 Lok Sabha constituencies. In the first Narendra Modi government, while the demands of the Kochi-based Fertilisers and Chemicals Travancore Limited (FACT) did not get much sympathy as the BJP had little stake, the government was more receptive for the demand for revival packages for companies like the BSNL, MTNL and HMT which had operations in the constituencies of BJP MPs. Apart from the reasons cited by Sitharaman like creation of new jobs, more funds for government's welfare schemes, and investment space for private players, government would have to convince many MPs that privatisation is good for their constituencies, especially as the opposition would be raising a din as it has been doing amid the ongoing agitation of farmers.