Privatization of the Public Sector: A Shift in Strategy

Since the Narendra Modi government facilitated the sale of Air India to the Tata Group in 2021-22, the term “privatization” has largely faded from public discourse. While there has been occasional mention of selling entities like IDBI Bank or the Shipping Corporation of India, little actual progress has been made. Rather than discussing outright privatization, the government’s focus has shifted to “asset monetization.”

This change stands in contrast to Prime Minister Modi's own words in a 2018 interview . Responding to a question about the government's hesitant approach to privatizing public sector companies, particularly after the initial failed attempt to sell Air India, Modi emphasized the government's commitment to disinvestment:

So, what has changed in the years since 2018? There are many reasons.

 Improved Performance of Public Sector Units

After considerable effort, many public sector units (PSUs) have begun to generate healthy profits and strong cash flows. Their market valuations, particularly in the finance and defense sectors, have reached new highs, reducing the urgency for privatization.

For instance, in the last year, eight PSUs have crossed the Rs 1 lakh crore mark in market capitalization, excluding giants like Life Insurance Corporation (LIC) and the State Bank of India (SBI), which are valued at over Rs 6 lakh crore each. LIC, which launched its Initial Public Offering (IPO) in 2022, is now delivering real positive returns to investors. The S&P BSE PSU index has surged over 80% in the past year, outperforming the general market.

Shift Towards Atmanirbharta (Self-Reliance)

Post-Covid, the government's emphasis on atmanirbharta (self-reliance) has reshaped the policy landscape. This initiative focuses on boosting domestic manufacturing, especially in sectors overly dependent on China and in defense, where geopolitical tensions demand greater self-reliance. In this context, privatization no longer aligns with the national agenda as it did during the earlier phase of global competitiveness and free trade.

Preference for Dividends Over Sales

The government now views extracting high dividends from profitable public sector companies as more beneficial than privatizing them. This avoids the political fallout of being accused of selling state assets too cheaply.

For example, the 2024-25 interim budget projects more than Rs 1.02 lakh crore in dividends from the Reserve Bank of India and public sector banks alone. Other PSUs are expected to contribute further.

Modi's Belief in Efficiency Over Privatization

Prime Minister Modi has consistently emphasized the importance of making public sector companies more efficient by minimizing political interference and allowing them to chart their own growth paths. During a 2013 interview with CNBC-TV18, then-candidate Modi indicated that there are viable alternatives to privatization, citing the success of Gujarat’s public sector companies under his leadership.

The Role of the Public Sector in Social Security

Modi recognizes the public sector’s vital role in extending social security programs to the farthest corners of the country. Schemes such as Jan Dhan, Ayushman Bharat, and Ujjwala likely could not have achieved their widespread reach without the involvement of public sector organizations.

Additionally, the government's ability to regulate petroleum prices through excise adjustments relies on public sector oil companies, which have managed this role without incurring the financial losses seen during the previous United Progressive Alliance (UPA) government.

A Balanced Approach to Privatization

The public sector, under the Modi administration, is once again seen as a wealth generator. Modi's nuanced approach of promoting efficiency without full-scale privatization has so far proven successful. As long as the current government maintains stability, public sector companies are likely to continue performing well. Whether or not the government returns to its earlier privatization agenda will depend on the political and economic circumstances post-2024.