Another perspective on the public sector
Privatisation is not a panacea for all ills, and it has its pros and cons—this is a view alien to our times, and yet when a few economists from the pantheon of the country’s central bank say so, it would create some ripples.
Amid calls for aggressive privatisation—a policy that the present government has very much pursued—an advice to go slow on privatisation of PSU banks comes as a surprise, if not anything more. The alternative perspective on privatisation put forth by the RBI economists is not without merits. These economists of the Banking Research Division, Department of Economic and Policy Research, and Reserve Bank of India (RBI) have argued in an article that PSU banks in the country are not solely driven by profit maximisation (as private sector banks have been). If seen through the filters of social and larger economic impacts, public sector banks (PSBs) have scored over private sector banks.
PSBs have been at the forefront of financial inclusion—78% of the PM’s Jan Dhan accounts are with PSBs. They have been more effective in disbursing loans to priority sectors (even as private banks have a tick-box attitude towards these loans) and the infrastructure sector. The article also elucidates that while private bank lending is more procyclical, countercyclical lending by state-owned banks helps smooth the business cycle. In times like these, when entrepreneurs are hailed as demigods and privatisation is seen as reform of the highest order, the article is bound to create some ripples. The RBI quickly clarified that the article’s views were those of the economists and not of the bank.
While the public sector has been termed a value destroyer, it is also true that the private sector over the years has also seen many value destroyers—just look at the number of companies which have been liquidated in recent times or the list of top 25 wilful defaulters. While criticising the public sector, we overlook their impact in stabilising a shaky post-Independence economy every now and then, even today. Do allow the entrepreneurial zeal of the private sector to flourish, but maybe when people-oriented intervention is necessary, PSUs still have a strong role to play.