IDBI privatisation: Govt must stay the course

The Centre’s decision to sell IDBI Bank Ltd will go a long way toward boosting not just the privatisation process, but also the reform process and, consequently, economic growth. For privatisation is the boldest and most visible liberalising move; the rollback of the state, the ultimate reform goal, is visible to all: the government gives up a company, which a private entity takes over.

Every privatisation is a statement by the political leadership: the business of government is not business. Prime Minister Narendra Modi has said it more than once, and after four years of dithering, it has steadily handed over public sector undertakings (PSUs) to private companies, as it should have, as per his own statement.

In the last 10 years, it has carried out 13 strategic disinvestments, including that in IDBI. Most of them have been phony though, as these didn’t involve privatisation; for instance, in 2017-18, the state-run acquired a 51.11-per cent stake in Hindustan Petroleum Corporation Ltd (HPCL) for Rs 36,915 crore. Similarly, Power Finance Corporation buying the government’s 52.63 per cent stake in Rural Electrification Corporation for Rs 14,500 crore in the next fiscal year was not privatisation. It was only in the last five years that the government has privatised PSUs.

Indian Medicines Pharmaceutical Corporation was sold for Rs 119 crore this fiscal; Ferro Scrap Nigam Ltd in 2023-24 (Rs 320 crore); Neelachal Ispat Nigam Ltd in 2022-23 (Rs 12,100 crore), and Air India in 2021-22. The Tatas paid Rs 2,700 crore in cash and took over Rs 15,300 crore of debt. The IDBI sale is also important because it is the biggest in the history of privatisation in India.

The Canada-based Fairfax Financial Holdings is paying Rs 52,878 crore for 60.72 per cent shares of the bank. Besides, it is the first privatisation in banking, as earlier takeovers in the sector were confined to public sector banks (PSBs) acquiring other PSBs. According to an official press release, the fair valuation of the enterprise was carried out by two professional valuation agencies using two independent methodologies.

“The average of these fair valuations was Rs 75.99 per share, which served as the benchmark price for the evaluation of the qualified bids. Since the winning best offer bid of Rs 81 per share [by Fairfax] was above the benchmark price, as well as fair value estimates of both the independent valuation agencies, it was adjudged to be reasonable and approved.”

The release has explained in detail the process to privatise IDBI, but the robustness of the selloff has never been a shield against criticism. Samajwadi Party chief Akhilesh Yadav mocked the privatisation as “Season End Sale.” He tweeted, “Now, all that’s left is for the government to sell itself... It seems like the BJP government, seeing its shop about to shut down, has planned to put up a ‘Season End Sale’ sign and sell everything off before making a quick exit (sic).”

Thankfully, this has not intimidated the government. In a counterattack, Finance Minister Nirmala Sitharaman shot back, “Since 2004, your party’s support was extended to the UPA. Given the dire state in which the UPA left the banks, it’s surprising that you’re talking about banks today, when back then you didn’t even raise a single question with your allied parties!” The government should stay the course.

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The Hans India