Narendra Modi Govt Is Keen To Revive Pre-Nationalisation Days

Taking clues from finance minister Nirmala Sitharaman’s last year’s budget speech on the government’s intention to privatise a few PSU banks, media reports appeared last week on the government’s intention to introduce a Bill during the coming monsoon session to privatise them and relax the cap on foreign equity holdings I banks. In this connection various legal, social, economic and the other far-reaching implications of privatisation of PSU banks need to be examined.

Recently crores of workers in public transport, Railways, electricity, banking, insurance, coal, steel, oil, telecom, postal services, farmer unions organised a historic two-day Bharat Bandh condemning the anti-worker and anti-farmer policies, outright sale of public sector enterprises and seeking to save the nation. Similarly, the United Forum of Bank Unions (UFBU) held a two-day national strike successfully protesting PSU bank privatisation and withdrawal of proposed Banking Laws Amendment Bill, 2021.

State-ownership of the bulk of the banks ensures the stability of our financial system apart from providing much needed capital to manufacturing industry, support to farmers and support to various government schemes to support the self-employed, small and medium industry and businesses.

We often learn from our grandparents how in the British colonial times and even during the prenationalisation period in independent India, fearing the threat of bank failures and ‘fly by night’ private banks that people preferred to hold their wealth in the form of currency notes hidden under beds or gold ornaments or land. The failure of over 350 private banks in the first two decades after independence, leading to depositors losing their money and hope, the popular mood had largely supported the then nationalisation of private banks. On July19, 1969, the then prime minister Indira Gandhi had announced nationalisation of 14 private banks. These banks were holding 85 per cent of deposits in the country. Only because of nationalisation, there has been a change in their savings preference in favour of bank deposits that has facilitated the channelling of investible resources towards investment through direct or indirect intermediation.

As expected at the time of nationalisation in 1969,the PSU banks continued to play a vital role in promoting the welfare function of the state, as visualised in the Constitution. Bank nationalisation in India had a more pressing objective in 1970s, which was to channelise institutional credit to sectors that had been neglected till then but whose growth was vital for the economy, such as peasant agriculture. These sectors were charged lower interest rates, and there were ‘priority sector norms’ to ensure that they got a certain share of the credit.

Apart from providing security on savings of millions of small depositors, public sector banks have always been at the forefront in implementation of various government schemes, social sector insurance schemes, including loans to self-employed, Mudra schemes, crop loans to farmers and to small and medium enterprises. Green revolution was successful and made the nation sovereign in food production which was possible thanks to support from the banking system. Wide expansion of bank branches to villages, provision of crop, dairy cattle loans, fertiliser subsidies, etc, have largely benefited the rural poor and reduction of poverty up to some extent.

In 1969, when private banks were nationalised, the then government had informed the Parliament that “the operations of the banking system should be informed by a larger social purpose, and should be subject to close public regulation”, it would serve the purpose of “severing the link between the major banks and the bigger industrial groups”, which had so far controlled credit, “the interests of the depositors of the banks which have been nationalised, will not only continue to be fully safeguarded but will now have the backing of the state itself.”

With initiation of neoliberal bank reforms undue preference to private banks, various bank scams, insolvency, lakhs of defaulted loans borrowed by major corporations belonging to Ambanis, Adanis, Choksi or Vijay Mallya became rampant. The Indian government is working hard to push the clock back to prenationalisation days. The profit-seeking financial systems that are not legally forced to distinguish between speculation and enterprise are equally vulnerable. And even such legal force is scarcely enough.

As a result, large sections of the disadvantaged households, small farmers and SMEs are not being able to access affordable credit facilities today from public sector banks. Despite loud claims of Mudra cheap credit extended to nearly five crore small entrepreneurs (a whopping Rs 3lakh crores), nowhere the beneficiaries are visible and unable to fetch cheap credit, thousands of SMEs are shuttering down every month.

From the point of view of the legal implications, the PSU banks are entities set up under Article19(6)(ii). Coming within the ambit of Article 12, they are deemed to be an arm of the state. As such, they are an instrument of the State in promoting the welfare role spelt out in the Directive Principles, especially Article 38(1) (“promote the welfare of the people”), Article 38(2) (“minimise the inequalities in income”), Article 39(b) (“the ownership and control of the material resources of the community are so distributed as best to subserve the common good”), Article 39(c))”that the operation of the economic system does not result in the concentration of wealth and means of production to the common detriment.”). In addition, they are also subject to the provision relating to reservations for the SCs/STs/ OBCs under Article16.

An important statement made on the floor of the Parliament at the time of nationalisation of banks by the then government that the purpose of bank nationalisation was to “sever the link” between the banks and the industrial groups to whom they give credit. Privatising a PSU bank would amount to restoring such an egregious link, which involves a clear conflict of interest. However, today, several corporate business houses stand heavily indebted to the PSU banks.

Many of them have been classified as NPAs including Ambanis and Adani, not to mention those defaulters who never care to pay the interest like Choksi, Vijay Mallya and many others. Largely NPAs are the outcome of outright fraud committed on the PSU banks. Would the government assure the Parliament and the public at large that no private entity having either a direct or an indirect link with any potential client of the bank would be chosen to take over the management of the bank? Would the government filter out all such heavily indebted corporate groups from the bidding process?

The government should consider the above constitutional binding and their legal implications while privatising the PSU banks.

Major corporate houses are borrowing money from public banks and diverting the funds to acquire cheaply facilitated public sector units or on speculation in open markets. The existence of speculators in the asset markets prevents the price of an asset from reflecting its “true value”. Diversion of capital to unproductive on-manufacturing is severely hurting our economy. And because of this diversion of public banking funds, productive capital to financial markets that channelise investible resources, that is society’s maximal producible (goods manufacturing and employment) to speculation and overconsumption is leading to banking scams such as Lehman Brothers or housing bubble.

These banking scams led to disastrous 2007 economic meltdown around the world. Greedy profit hungry ordeals of crony capitalism are driving capitalism to periodical cycle of crises and even challenging the existence of capitalism. Again, governments around the world had to put off the fire by using huge public funds (USA alone used nearly 13 billion dollars) as bailouts. Huge diversion of public funds as bailouts led to severe austerity measures and cut in welfare budget allotments to poor.

It was strong public banking system that enabled the banks in India to withstand the worldwide crisis. It also protected the economy in our country. Had the public banks been privatised by then, India would have suffered severe financial woes in2007.

The ruling BJP government has limited understanding in economic matters and its mad rush to privatise public banking system to benefit crony capitalists and imperialist financial institutions should be resisted by united actions of workers, farmers and common people. That is the only way to get rid of such a crisis. (IPA Service)

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