Three decades ago, Manmohan Singh unveiled a slew of reforms – many came days and weeks before his first Budget in July 1991 – that changed the face of the private sector. In 2021, Nirmala Sitharaman’s policies in her third Budget aim to transform the state of the public sector. Singh hoped to unleash the capitalist animal spirits to create wealth. Sitharaman wants the government to get out of business to achieve the same objective.
However, there is a huge difference between the two finance ministers – Singh acted, Sitharaman shows intent. In a dramatic manner, the former opened the floodgates for the entry of the private sector in new ‘sunrise’ areas, and furious expansion without restrictions like the MRTP Act. He dismantled the licensing raj, and the double devaluation of the rupee ensured the competitiveness of exports. In his Budget, Singh allowed foreigners to freely invest in several sectors.
In contrast, Sitharaman lays out a policy for future action. Annexure III of her Budget states that she wishes to sell state-owned units.
There will be “bare minimum presence” in four strategic sectors – atomic energy, space, and defence; transport and telecom; power, petroleum, coal, and minerals, and banking, insurance, and financial services. The state-owned units in these areas will either be privatised, merged with other PSUs, or closed.
When it comes to the remaining non-strategic sectors, the government companies will either be privatised or sold. In fact, after disinvestment, the growth of the firms that survive “will be through the infusion of private capital, technology, and best management practices”. In essence, the government will completely walk out of businesses in non-strategic areas and retain a minimal presence in the four strategic ones.
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Singh’s decisions gave fresh leases of life to the private sector. Sitharaman may do the same but through the death of the public sector. More importantly, the former hit the ground running, his announcements were applicable immediately. In contrast, the current finance minister is a bit cagey and apprehensive. She only gives us a road map that the government hopes to follow. The fact that there may be a few slips between the cup and the lip is evident.
In her budget, estimates on disinvestment proceeds for the next year (2021-22), Sitharaman pegs a figure of ₹ 1.75 lakh crore, which is less than the figure that she mentioned in her previous budget presented in the pre-COVID times. This implies that despite the viral vaccine, expectations of V-shaped growth, a string of stimulus packages, and the Sensex’s rise to 50,000, the finance minister isn’t sure if she can aggressively push disinvestment over the next 14 months.
Apart from the big-ticket part-sale of Life Insurance Corporation, which may garner ₹ 1 lakh crore if 10% is divested, and strategic sales of BPCL and Air India, there will be little action on this front. Hence, while the intent to leave the business to the private sector is there, the action plan is missing. One expects several roadblocks in the part-sale of LIC due to opposition from the workers, agents, and even the policyholders.
One can safely say that like the three farm acts, the amendments to the LIC Act, which Sitharaman promises to present in the current Parliament session, will face tremendous controversies, and possibly protests. The same will be the case if a few banks, as Budget 2021 states, are put on the block. The journey ahead will not be smooth– disinvestment, as Singh too found out, has hidden mines that can be tripped by unintended and unexpected factors.
Another indication that the government, despite its blueprint on state-owned units, will walk on eggshells is clear from the manner in which the finance minister talks about the sale of public assets. Such sales should not be confused with disinvestment and privatisation. The latter implies the sale of shares held by the government in companies. The former means that specific assets, like roads, ports, airports, and land will be hived off to private players.
In her speech, the finance minister talks about “asset monetisation” of “operating public infrastructure” at regular intervals. She mentions the sale of roads and transmission assets. The dedicated freight corridors of the Railways will be operated and maintained by the private sector. Ports and airports, as is the case in the metros, will involve private players. The same will be the case with the gas pipelines of state-owned GAIL, IOC and HPCL.
Surplus land with government ministries and departments, as also PSUs, will be monetised through “direct sale or concession or by similar means”. For this specific purpose, she wishes to set up a Special Purpose Vehicle. As Sitharaman emphatically says, “Idle assets will not contribute to AtmaNirbhar Bharat.” Ergo, the government will get rid of them. Most people who listen to budget speeches will yawn at this stage. Haven’t we heard this before?
However, what is crucial is that the finance minister’s expectations from such sales of public assets, as opposed to disinvestment, aren’t much. As she herself mentions, only ₹ 5,000 crore worth of five operational roads will be transferred for sale purposes. Another ₹ 7,000 crore worth of transmission assets are being included for sale in 2021-22. Seven port projects worth “more than ₹ 2,000 crore will be offered by the Major Ports” on PPP mode.
Although the stock markets gave a huge thumbs up to Sitharaman’s Budget – and she did promise us a dream one – Singh’s first Budget, and more prominently the decisions he took before it, was way ahead in terms of vision. But to be fair to the current finance minister, she has the time to walk her talk.