Bending Towards Bold Reform: IDBI Stake Sale, 26-Year Arc of Governance, Pg10

Key Highlights:

• The IDBI Bank strategic disinvestment marks the largest Foreign Direct Investment (FDI) in India's financial sector.
• This move signifies a reversal of the arc of capital reform, shifting from bank nationalization to privatizing a national bank.
• The disinvestment aims to improve the efficiency of financial intermediation and potentially lower capital costs in India.
• Prime Minister Narendra Modi has completed 26 years in public office, with this disinvestment being part of his broader governance reforms.

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Detailed Insights:

• The decision to divest IDBI Bank to a private entity is seen as a significant step towards enhancing the competitiveness of India's financial sector.
• India's cost of capital remains higher than ASEAN peers, impacting competitiveness, a challenge the disinvestment seeks to address.
• Historically, 14 banks were nationalized in 1969 and six more in 1980, bringing 91% of banking under public control, leading to political lending and bad-loan crises.
• The 1991 economic reforms largely bypassed structural changes in factors of production like land, labor, and capital, which are now being addressed.
• PM Modi's governance model is characterized by "Six Cs": Consistency, Continuity, Creativity, Consensus, Commitment, and Calibration.
• Consistency is exemplified by initiatives like Jan Dhan, Aadhaar, UPI, Swachh Bharat, Ayushman Bharat, IBC, GST, DBT, and PRAGATI.
• Continuity involves scaling inherited programs, such as expanding Aadhaar and linking MGNREGA to durable rural assets through VB-G RAM G.
• Creativity is evident in leveraging technology for governance, like PRAGATI for project resolution and Jan Dhan and UPI for large-scale benefit delivery.
• Consensus building is highlighted by the GST Council, a unique experiment in cooperative federalism where states pooled taxation sovereignty.
• Commitment to fiscal discipline is shown by the fiscal glide path, reduction in gross Non-Performing Assets (NPAs) under IBC, and inflation targeting.
• Calibration involves navigating a changing global order, with the Modi government signing nine Free Trade Agreements (FTAs) and giving a voice to the Global South through G20 and BRICS presidencies.
• Future priorities for Viksit Bharat 2047 include faster growth, completing factor market reforms, modern legal architecture, advanced manufacturing, and quality jobs with skilling and R&D.

Key Concepts Involved:

• Strategic Disinvestment: Government selling a significant portion of its stake in a Public Sector Undertaking (PSU) to a private entity, often with transfer of management control.
• Fiscal Glide Path: A pre-announced trajectory for reducing the fiscal deficit over a period, aiming for fiscal consolidation and macroeconomic stability.
• Cooperative Federalism: A concept where the central and state governments collaborate and cooperate on policy-making and implementation, sharing responsibilities.
• Factor Market Reforms: Policy changes aimed at improving the efficiency and flexibility of markets for factors of production, such as land, labor, and capital.