The government of India has decided to sell a majority of its stake in IDBI Bank to Fairfax Financial Holdings, a Toronto-based firm led by Prem Watsa, an Indian origin Canadian. The government and Life Insurance Corporation (LIC) together hold nearly a 95 per cent stake in IDBI.
In mid-October, the government announced that it would sell over 30 per cent each of its and LIC’s stakes to Fairfax Financials, thereby also handing over control of the bank to Fairfax, for a price of Rs52,878 crore. The sale proceedings are expected to be completed this financial year. Incidentally, this sale helps the government meet its fiscal divestment target of Rs80,000 crore.
This is a welcome move on the part of the government and comes at an opportune time, when the markets have been performing at their best. Divesting the government’s stake in the various public sector undertakings across India is a goal of this government. It is worth noting that even the earlier Manmohan Singh-led United Progressive Alliance government had supported the idea of divesting the government’s stake in multiple public sector undertakings.
It is widely accepted at this juncture that business is not the business of the government; creating a fair environment for business to grow, whether established or a new venture, is what the government is supposed to do. At a time when confidence in the Modi government has come under question, following protests across the nation by youngsters, a reflection of their frustration at the lack of opportunities, its move to divest from IDBI must, therefore, be supported by all.
Moreover, the fact that a foreign financial firm (albeit headed by a person of Indian origin) remains interested in picking up a majority stake in an Indian bank is also a reflection of the continued interest of the world in India’s economic growth story. This sale of IDBI was announced around the same time that Jio Platforms announced India’s largest ever initial public offering (IPO), which generated huge interest and can only augur well for the still-reeling economy.
While it is fine for foreigners to pick up stakes, the government must keep aside some shares for the people of India. For years, governments have sought to get middle-class Indians interested in investing in mutual funds and equities and keeping aside some shares for the public is a necessary measure to get the people’s participation. One hopes that when the government decides to offload LIC’s and its own remaining stakes in IDBI Bank, some of it will be sold to the citizens of India.
As can be expected, some voices have questioned the government’s move over the sale of IDBI Bank, including the unions. One particular complaint is that IDBI is making a profit, which earns the government dividends. The government and LIC both continue to retain a share in IDBI Bank; any profits earned in the coming years will get them a handsome dividend. It is because IDBI Bank is earning a profit, after years of being in the red, saddled with unacceptable levels of non-performing assets (NPAs), that it was sold for a good price.
The fact that there is interest in Indian banks is a chance for the government to look closely at its holdings in the many nationalised banks of India. In 1969, the then Indira Gandhi government had nationalised 14 private banks, claiming it was necessary to do so for India’s benefit, though many saw it as being politically motivated. While privatising the nationalised banks is a politically hot potato, one hopes that the government starts moving in that direction at the minimum.
The Union government should also use this opportunity to urge the states to offload their stakes in undertakings owned by them. One can understand states run by the Opposition parties refusing to do so: they have to show themselves as being different from the BJP-led government at the Centre. But it is no excuse for the scores of states run by the BJP that are refusing to divest their share in the state government’s undertakings. This is now the right time for the Union government to nudge at least the BJP-ruled state governments, such as Gujarat and Maharashtra, to start doing so.
It should be remembered that scores of the state government-run public undertakings are incurring losses, which are then reimbursed by the citizens’ taxes. It is wrong of the states to burden the citizens just to keep loss-making firms afloat. It is time for the state governments to let go of their many public sector undertakings and focus on their core job – which is governance.