The Central government’s decision to sell a part of its stake in IDBI Bank to Canada’s Fairfax Financial Holdings is a welcome step towards rationalising the state’s presence in commercial enterprises. The transaction makes sound economic sense, not merely because it allows the government to unlock capital, but also because it recognises that public ownership should serve a specific purpose rather than become a permanent obligation.
IDBI Bank was never a conventional public sector bank. It was initially established as a development finance institution. Subsequently, it was transformed into a commercial bank before running into serious financial difficulties. The government’s intervention, alongside that of the Life Insurance Corporation of India (LIC), was essentially a rescue operation intended to stabilise an institution facing a crisis. It was not an investment made with the objective of expanding the state’s commercial banking empire.
With the bank having regained financial stability, there is little justification for keeping scarce public capital locked up in it indefinitely. The government already controls most of India’s large and mid-sized public sector banks. Retaining a substantial investment in another bank serves no compelling strategic purpose, especially when the money could be deployed towards infrastructure, education, healthcare or reducing public debt.
The transaction also comes at the right time from a macroeconomic perspective. With the rupee under pressure, foreign investment flowing into the country would provide a welcome supply of dollars. While a single transaction cannot fundamentally alter the currency’s trajectory, such inflows can ease immediate pressure and, more importantly, reinforce international investors’ confidence in India’s economic prospects.
What is disappointing, however, is the government’s apparent reluctance to acknowledge the transaction as a step towards disinvestment. Finance minister Nirmala Sitharaman’s assertion that the deal should not be considered disinvestment because the government and LIC would continue to hold a combined 34 per cent stake reflects an unnecessarily defensive approach.
There is nothing inherently objectionable about disinvestment. The more important question is whether the transaction secured a fair value for taxpayers, strengthens the institution and promotes competition.
The Bharatiya Janata Party government’s hesitation is also striking when viewed against Narendra Modi’s pre-2014 election advocacy of greater economic opportunity, entrepreneurship and a more limited role for government in business. Despite more than a decade in power, the BJP-led government has remained reluctant to substantially reduce the state’s commercial footprint.
The Centre continues to operate 274 central public sector enterprises across 12 broad areas, including energy, power, mining and metals, defence, aerospace and shipbuilding, transport, heavy engineering, telecommunications and electronics, chemicals, space, civil aviation and agriculture-related activities. Some of these enterprises operate in strategically sensitive sectors, but many compete in markets where private participation is already well established.
The government’s primary responsibility is to regulate markets fairly, protect national security, provide essential public services and create conditions for private enterprise to flourish. If outright disinvestment remains politically difficult, the government could adopt an alternative approach by consolidating its enterprises into sector-specific holding companies and listing them on stock exchanges. Such mega companies with lakhs of crore revenue can boost investment in the country better than smaller public sector companies.
Disclaimer : This story is auto aggregated by a computer programme and has not been created or edited by DOWNTHENEWS. Publisher: deccanchronicle.com
