Courtesy: New Indian Express
Courtesy: New Indian Express

After Prime Minister Narendra Modi’s announcement of a₹20 trillion revival package, and finance minister Nirmala Sitharaman’s elucidation of the measures in five instalments, the response was dismal. Sensex crashed by 1,069 points on Monday. Goldman Sachs forecast that GDP growth this year would crash to –5%. Former chief statistician Pronab Sen felt it might be –9%. Alas, the package is a sedative to ease the pain, not a stimulus that will revive a crashing economy. Sedatives have their uses, but must not be mistaken for stimuli, let alone cures.

Yet, the package might just go down in history as a turning point in economic reform. ‘Never waste a crisis’ is an old saying, and Modi is not wasting this one. But he and Sitharaman have not spelt out details of many proposed reforms in land, labour and the legal system. But their dramatic embrace of privatisation is unambiguous and stunning.

Home-Groan Logic

The Bharatiya Mazdoor Sangh (BMS), BJP’s labour wing, has always opposed privatisation. The Swadeshi Jagran Manch (SJM) has never been enthusiastic either, worrying that public sector undertakings (PSUs) may be acquired by hated foreigners. Last year, these two organisations campaigned against India joining the Regional Comprehensive Economic Partnership (RCEP), a free trade area of 15 nations including China, and Modi surrendered to their viewpoint. Despite his great victory in the general election, he felt he lacked the political capital to overrule anti-reformers in his party. That seemed to confirm his image as a cautious incrementalist.

But the Covid-19 crisis has ended business-as-usual and created an urgent need for drastic medium-term changes that will accelerate growth once this crisis eases. GoI will notify a list of strategic industries in which a maximum of four PSUs will coexist with private-sector competitors. This implies all public sector banks (PSBs) will be consolidated into four mega-banks. In all non-strategic sectors, all PSUs will be privatised, as may be feasible (some dud PSUs will attract no bidders). This full-blooded liberalisation deserves applause.

The rest of the article can be accessed here. This post was originally published on the Economic Times website on 20th of May 2020.

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Swaminathan SA Aiyer

Swaminathan S. Anklesaria Aiyar is a graduate of St. Stephen’s College, Delhi, and Magdalen College, Oxford. He is currently Consulting Editor of The Economics Times and a research scholar at The Cato Institute. He has been editor of two of India’s biggest economic dailies, Financial Express in 1988-90 and The Economic Times in 1992-94. For two decades, he was also the India Correspondent of The Economist, the British weekly. He has been a frequent consultant to the World Bank and the Asian Development Bank. He is best known for his popular weekly column in The Times of India, “Swaminomics”. Swami, as he is universally called, is also a social investor. He runs the Mukundan Charitable Trust. He has co-promoted three micro-finance institutions – Arohan in Calcutta, Sonata in Allahabad and Mimo Finance in Dehra Dun. He is on the Board of Directors of Artisans Micro Finance Ltd and hopes to convert artisans into share-owning millionaires. And he is building a fleet of medical ships on the Brahmaputra to serve islands that have never seen a doctor.