P. Devarajan

QUITE expectedly, the Leftists have started ranting over the footmarks left by the IMF and World Bank on the Indian economy. Since 1991, every move by the Indian economy has been ordered by Washington, say the Leftists forgetting that most Indian economists much before 1991 had been predicting a financial crisis.

In 1991, India had about $500 dollars in reserves and today has about $118 billion in reserves. India has paid back the IMF loan taken in 1992 and today is not a net taker of aid. It may be best for the Chief Minister of West Bengal, Mr Buddhadeb Bhattacharya, to check out this minor detail with Dr Manmohan Singh.

For Sonia Gandhi's Congress and the Leftists, privatisation of public sector enterprises is not acceptable. That is understandable even as there is a sharp distinction between privatisation and disinvestment. Privatisation is handing over control of public sector enterprises to the private sector while disinvestment is inviting private players pick up stakes without ceding management control.

To be fair, the Vajpayee government pushed for disinvestment and neither Dr Singh nor the Leftists can today feel upset over handing 10 per cent stake in ONGC to private players. It may be useful to remind Dr Singh that he thought of disinvestment as a measure to reduce the fiscal deficit.

Wholly owned public sector units are not board-managed companies and have to report to Union Ministries and the Parliament.

Ministers prefer to have a few such units under their thumb to underwrite personal and family expenditure, explaining their objections to even disinvestment.

When private equity players get to hold 15 to 30 per cent of the equity in state-owned enterprises, the management will come up against tough queries and willy-nilly have to display more details in balance

Can then Dr Singh object to some shedding of government equity to private players even while retaining government control at 51 per cent?

Perhaps, the recent happenings in the financial system do illustrate the point. Most government-owned banks have divested equity stakes up to about 49 per cent over the last couple of years without losing their public sector character. A Cabinet Appointments Committee selects the top executives in banks.

That is theory. In practice, the process smacks of intense politics with chief executives of banks linked to particular set of politicians with the RBI having little say. A Central Vigilance Commission checks out on bankers as if they are all miscreants.

In fact, disinvestment has not made any difference to the way public sector banks, accounting for 80 per cent of the business, operate.

The Narasimham Committee had suggested scaling down government stake in banks to 33 per cent.

That is most unlikely as Dr Singh, as a member of the standing committee on finance in the last Parliament, did not much like the idea. The Leftists will not agree to any change, as powerful bank unions are headed by Leftists.

The previous Governor of RBI, Dr Bimal Jalan, had written in one of his essays: "It has to be recognised that in our situation, particularly in view of the need to give adequate attention to agricultural credit and rural banking as also to maintain public confidence in the safety of banks, the public sector character of these banks should not be given up ... It may be necessary to prescribe a maximum (at a suitably low level) for shareholding of any single individual or a corporate in public sector banks."

Dr Yaga Venugopal Reddy, the present RBI Governor, will heartily agree with Dr Jalan and seems to be credited with the view that the banking industry cannot be placed on par with soaps and detergent units. But has public sector banking helped anyone except a few industrialists and their political backers?

One is not quibbling over the theory and nature of bank ownership; at the ground level, on Mint Street, banking even today is more about political influence and less about quality management.

The Sonia Gandhi government will have to think up ways of giving more freedom to bank boards, withdrawing RBI nominees from the boards and getting the central bank to man the banking system instead of the banking department in the Finance Ministry.

Can these changes be effected without amending various banking Acts?

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