LIC buying IDBI Bank may be bad policy, but it saves Modi from Rahul Gandhi's barbs—that’s privatisation’s new reality
For all its talk about privatisation, the government clearly hasn’t warmed up to the idea. On the contrary, it seems to have got cold feet ever since the Opposition accused it of being a suit-boot-ki-sarkaar. After all, IDBI Bank was a relatively easy sell given it was the only PSU bank that could have been sold without getting permission from Parliament. However, instead of bidding it out to the private sector, the government found it easier to misuse the balance sheet of LIC to keep the lender afloat. In much the same manner, it got ONGC to buy its stake in HPCL, rather than privatising it; since HPCL is a strong company, it would have fetched the government a lot of money. While reformists will slam the government for fake privatisation—or disinvestment—the fact that the Congress party cannot accuse it of favouring cronies would appear to have been a more pressing concern. Indeed, four years after prime minister Modi made a statement to the effect that it was not the government’s business to run a business, almost as if cocking a snook at previous regimes, the government hasn’t sold anything. A clutch of near-bankrupt state-owned enterprises—MTNL, BSNL and Air India—remain state-owned, inefficient, and continue to guzzle precious resources.
And, while Modi has, in an interview to Swarajya, tried to defend the Air India privatisation failure by saying the government had done its best, it is odd that it wanted to retain a 24% post-privatisation stake despite investors being wary about the government being a partner. And, despite the huge debt being an issue, the government didn’t think of writing it all off—had it done so, Air India would have been profitable, and a better buy. One argument for not doing so is that it would have attracted the ire of the 3Cs—CVC, CAG and CBI. But, as long as this was done upfront and bids were called, there would have been no problem. Except for the Congress party alleging this was done to help cronies.
In which case, the prime minister shouldn’t have proclaimed so hastily, in front of a global audience, that his government would bite the bullet. Because, for all the big talk on privatising PSUs and assertions that its job was that of a facilitator to create new opportunities, the government has not even sold off its entire stake in SUUTI. There was a lot more action—and less talk—during the Vajpayee government’s tenure when some big ticket disinvestments took place, including those of IPCL, Bharat Aluminum, Hindustan Zinc and VSNL. In sharp contrast, the Modi government has burdened the exchequer to keep unprofitable PSUs from going under and getting LIC to buy a stake in IDBI Bank is the ultimate in trampling on the balance sheet of a company that is responsible for returns to millions of policyholders. To be sure, it would be too much to expect the government to sell the PSU banks, especially since all such transactions—except IDBI Bank—need the Opposition to go along with it in Parliament. But, the fact that Modi should tell Swarajya that, while policy decisions for strategic sales have already been taken, “we don’t want to make a sale where we will be accused of selling something for X amount when we could have got more” makes it clear that it is Rahul Gandhi’s suit-boot barb that is holding back privatisation; and possibly several other decisions as well.