The Budget 2023-24 will likely sidestep major reform initiatives, be it the targeting of fertiliser subsidy via direct benefit transfer (DBT) or the privatisation of public sector banks (PSBs) and state-run insurance firms, people familiar with discussions in the government told FE.
This is because the Centre has decided to go slow on stalled financial-sector and expenditure reforms that could potentially lead to any political backlash and cost it electorally. Nine state Assembly elections are to take place before the general elections, which will be held latest by May 2024.
“The government doesn’t want to antagonise people just when so many states are going to the polls ahead of the general elections in early 2024. Political opponents could instil fear among people about reforms even though they are well-intentioned,” a senior official said. “There is no appetite for any major disinvestment now in the banking or insurance sector. Even many BJP leaders are against privatisation,” another official said.
Finance minister Nirmala Sitharaman, in her Budget speech of 2021-22, had announced that two PSBs and one state-run general insurer would be privatised, adding that Bills would be introduced in Parliament for this purpose. The voting rights cap of 10% for a non-government shareholder irrespective of her shareholding is among the key constraints identified for the privatisation of PSBs. The government will need to either amend or repeal the Banking Companies (Acquisition and Transfer of Undertakings) Acts of 1970 and 1980, usually referred to as nationalisation Acts, to remove the hurdle.
While the Banking Laws (Amendment) Bill, 2021, was listed as part of the legislative business for the winter session of Parliament that concluded on December 23, 2021, it is yet to be tabled in the House. The Cabinet, too, has to ratify the draft Bill before it is introduced in Parliament. Sections within the government feel that the process could be initiated only after more consultations among stakeholders, particularly potential investors.
On its part, the Niti Aayog has already recommended the privatisation of Indian Overseas Bank and Central Bank of India, but the government is yet to take a final call on the names of the sell-off candidates.
The stalemate is even as the government is open to the idea of offloading its entire equity in the two banks that are proposed to be privatised, instead of the initial plan to retain a 26% stake, to garner greater interest from potential investors. With it, there would be procedural changes, including the quantum of individual shareholding in these banks, to facilitate the sell-off.
Already, Parliament has cleared a Bill to facilitate the privatisation of state-run general insurance companies by removing the requirement of the central government to hold at least 51% stake in an insurer. But the sale of a state-run insurer is yet to take place.
Even though the government has successfully managed to privatise ailing national carrier Air India this year, it abandoned the privatisation of fuel retailer-cum-refiner BPCL due to adverse market conditions as well as the lack of real pricing freedom for oil marketing companies.
The Centre’s fertiliser subsidy bill, which has almost tripled to about Rs 2.3 trillion in FY23 from Rs 70,000-80,000 crore per annum before FY21, may remain similarly elevated in FY24, too, if global hydrocarbon prices don’t moderate. To curb the rise in subsidy, the government was toying with the idea of giving subsidised fertilisers or equivalent cash on a per-acreage basis. “No one is talking about the fertiliser subsidy reforms now,” another official said.
The sale of all subsidised fertiliser to farmers or buyers is currently made through point of sale devices installed at outlets since March 2018 and beneficiaries are identified through Aadhaar number, Kisan Credit Card and other documents. However, subsidies on fertilisers have remained the most sticky, being universal and uncapped. Direct cash transfers to the farmers’ bank accounts and a capping of the subsidy based on land holdings would have improved the largesse’s efficacy, besides leading to major savings, but this plan has again been put on the back burner.