Indian Government Will Privatize Almost Every Public Sector Bank

Company To Optimize Spending: Finance Secretary

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Expenditure Secretary TV Somanathan believes that the government would “eventually” privatize most of the public sector banks (PSB) and significantly decrease its presence in them.

He appended that his statements are personal views and not reflective of the center’s stand.

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

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

On Banking Reforms

Coming to the banking sector betterment, he said that the government would be privatizing PSBs, and eventually, their population in the sector will come down significantly.

He stated, “The momentum now of the government is to go beyond this position that the public sector banks will continue in the public sector. We have now declared 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 ultimately remain, that is the stated policy.”

On Subsidy Reforms

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

According to him, farm, food, and fertilizer subsidies are crucial segments of government spending.

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

Challenges Ahead

In addition, he recommended that the center “improve the efficiency of public expenditures on education, health, and infrastructure.”

He acknowledges the challenge of implementing reforms and improving the efficiency of education expenditure.

The government faces other complex tasks, such as improving the quality of schools and boosting health expenditure gains.

Implementing education and infrastructure reforms is easy to initiate, but difficult because states and other stakeholders must cooperate.

The GST system suffering from technical glitches has been fixed and stabilized and will continue to grow in revenue collections down the line.

Past Government Performance

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

In the following years, the pace of reforms slowed down.

Suggestions For The Government

The serving government should pursue governance reforms at 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 of, Competition Commission of India, commented on banking sector reforms.

He said that the sector needs a complete overhaul in asset quality and governance both in public and private sector banks.

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