Fundamental Government Perspective Change in India: Why is the current government encouraging more capitalism-driven policies than the historically socialist policies of India?
At first, we need to understand capitalism and its advantages of having a capitalistic economy. Capitalism is a system which all countries had to adopt & implement after world war 2, which led to the globalization of the world and to bring peace & divert the attention of everyone on the planet to focus on work & prosperity than a war against each country & community. The capitalistic society brings advantages of having more independent individuals that depending upon the government for work & money. In capitalism, the money can be earned by an individual by doing his own work independently than seeking approval from the government for various work that he wishes to do. The innovation & creativity of everyone is curtailed by the bureaucracy in government as it requires more approvals to execute an idea.
Since independence, the country has had a consistent increase in the overall growth of the economy. However, we did not reach the potential it had to be reached due to the nationalization of all Indian banks in 1969 by then prime minister Indira Gandhi. The consequence of nationalizing the banks will be slow credit growth, lower efficiency, higher bureaucracy, corruption. Once the Indian economy was liberalized in 1991, the private banks were started and higher efficiency in the management of assets was carried out with steady growth such as HDFC Bank (NS:HDBK), Kotak Mahindra Bank Ltd. (NS:KTKM), etc.
The value of the HDFC (NS:HDFC) bank, Kotak bank is higher than the SBI (NS:SBI) bank is because of the efficient management even if the asset size of HDFC bank, Kotak bank is lower than the SBI bank. If the banks have higher profits quarter on quarter, it indicates the growth of the overall economy and shows that the population is productive with the use of money that is being circulated in the economy. The public sector banks are absolutely needed for an economy, but the growth trajectory should also not be curtailed by the same public sector banks. The loans are provided to common people in order to make the individuals more productive in society, to improve their livelihood by utilizing their loan money in a fairway. This capitalistic process makes every citizen to be held accountable & responsible for his/her actions he/she does in this society.
The reason why the private sector banks grow faster than the public sector banks is because of the incentive system that it provides to the employee if he/she achieves a target. In the public sector banks historically, the employee was not given any incentives to improve the work and the people tend to take advantage of government-regulated institutions because of its inability to push the individual to repay the money. The private sector banks are more ruthless and efficient in the way they collect the money which will, in turn, increase the accountability of the general audience. In general, there is a notion among the Indian public that once we get a job in public sector banks, there is an opinion that his/her future is safe which subconsciously leads to having a safe/secure future mindset than having a performance-based mindset to improve the organization. Hence the employees in the public sector banks are not able to efficiently improve the growth trajectory of these national banks.
Since we spoke about the inefficiency of public sector banks, it is also important that we speak about the inefficiency in the private sector banks such as Yes Bank (NS:YESB) and Lakshmi Vilas Bank. In the Yes bank case, the lack of integrity of the promotor led to the collapse of that bank as he had used an illegal way of lending the public money to the wrong businesses for personal gain. This shows that the wrong practices in the private sector can be held accountable for their actions than the wrong practices in the public sector banks. The government will be held responsible if something goes wrong in the public sector banks, which prevents them from providing the money again to minimize the damage. If something wrong happens in private sector banks, there are other privately funded institutions to improve the efficiency of these affected private banks. Every country has scams in banks, even the oldest democracy USA also had a scam in highly reputed bank Wells Fargo (NYSE:WFC) in 2016. We must accept that scams are part of every society, but that vulnerability should not prevent us from aspiring for the growth of this country.
Hence that is the sole reason why this current government is pushing to have a more private-oriented economy than the public-oriented economy. One of the great transformations of a public company to a private company is car manufacturer Maruti Suzuki (NS:MRTI) and Hindustan Zinc (NS:HZNC). The Government sold its Maruti Suzuki organization to Japanese company Suzuki in 2003, it transformed the company into a large organization through innovation and attained a 50% market share of the overall Indian passenger car segment. Similarly, the Government sold its Hindustan Zinc to a private company Vedanta Ltd (NS:VDAN) and that loss-making PSU’s privatization led to a massive growth of that organization. Surprisingly, both these companies were privatized during Vajpayee’s era which transformed the course of these organizations.
Transforming the public sector organizations is not an easy task as there will be opposition for every step, government has been covering the costs of loss-making Air India for the last 4 years through the tax-payers money. Hence it is sensible to privatize the loss-making PSU companies than providing the money of tax-payers for covering its losses.