Govt Will Privatize Almost Every Public Sector Bank, Company To Optimize Spending: Finance Secretary

Expenditure Secretary TV Somanathan opined that the government will “eventually” privatise most of the public sector banks (PSB) and significantly reduce its presence in them.

He added that his statements are personal views and not reflective of the centre’s stance.

He further added emphasis on the need for subsidy reforms and to improve the quality of public expenditure.

This is to generate extra funding which can be used for infrastructure development and education.

On Banking Reforms

Coming to the banking sector reforms, he said that the government will be privatising PSBs and ultimately their population in the sector will come down significantly.

He stated, “The thrust now of the government is to go beyond this position that the public sector banks will remain in the public sector. We have now announced that the public sector banks, most of them will eventually be privatised. Now saying eventually privatised and actually privatising them are two different things, but we are actively engaged in privatising them. And banking is one of those sectors where only a bare minimum public sector banks will eventually remain, that is the stated policy.”

On Subsidy Reforms

Coming to subsidy reforms, he said that if the government is to set the fiscal house in order and provide things it is supposed to, subsidies will have to be reformed.

According to him, farm, food and fertiliser subsidies are some of the important components of government spending.

These reforms are administratively easy but politically difficult to implement due to potential consequences.

Challenges Ahead

He also suggested that the centre should “improve the efficiency of public expenditure on education, health and infrastructure.”

He acknowledged the difficulty of executing reforms and to draw better efficiency out of education expenditure.

Other difficult tasks for the government include improving school quality and boosting gains from health expenditure.

Reforms in education and infrastructure are easy to initiate but tough to implement since it requires cooperation of states and other stakeholders.

The GST system which was suffering from technical glitches has been fixed, stabilised and will continue to improve in revenue collections down the line.

Past Government Performance

Montek Singh Ahluwalia, former Deputy Chairman of Planning Commission, said that the government in 1991 was able to move ahead with a set of coordinated reforms which led to economic stability by 1993.

But after 1993 the pace of reforms dwindled.

Suggestions For The Government

He recommended that the serving government pursue governance reforms in PSBs.

It also needs to “put regulatory powers of RBI over public sector banks at par with private banks.”

He further expressed that the government seems to be heading towards protectionism as the economy model.

Ashok Chawla, Former Chairman, Competition Commission of India, commented on banking sector reforms.

He said that the sector needs a complete overhaul when it comes to asset quality and governance both in public as well as private sector banks.

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