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New privatization policy ready; Cabinet to discuss note on 'strategic sectors' soon

Banking and insurance will be designated as 'strategic sectors', sources told Moneycontrol. Over the long run, the Centre will have only four PSUs in strategic sectors and exit the 'non-strategic sectors' completely

After months of inter-government discussions, the proposal to define ‘strategic sectors’ is slated to be taken up by the Union Cabinet within the next few weeks, Moneycontrol has learnt from senior government sources.

“The cabinet note was circulated to 49 central ministries and departments. There were a lot of inputs, but the note is now ready,” said a top government official, who spoke on the condition of anonymity.

The person added that the note could be up for consideration within 10-15 days.

“Banking and insurance will be designated as strategic sectors,” the officials said.

This means that over the long run, there would only be four state-owned banks and insurance companies each. The government plans to achieve this through further consolidation and may even privatise some of its companies in the financial sector.

The Indian Railways, oil and gas, defence, space, and atomic energy are also expected to be designated as strategic sectors.

The ‘strategic sector’ policy was announced by Finance Minister Nirmala Sitharaman as part of the ‘Aatmanirbhar Bharat’ package. In each strategic sector, no more than four state-owned companies will exist.

“In the notified strategic sectors, it would be only one to four public sector enterprises. They will be merged or brought together, so there won’t be mushrooming of public sector,” she had said.

Since the announcement, neither the Finance Minister nor anyone else in the government has given any time limit to the new privatisation policy.

Officials have said in private that once a sector is designated as ‘strategic’ or ‘non-strategic’, there is no fixed timeline for when the government has to reduce or exit its presence. In ‘non-strategic’ sectors, the government plans a complete exit.

After the latest round of consolidation of public sector banks (PSBs), there are currently 12 PSBs. On August 30, 2019, the Centre had announced a third round of PSB consolidation. It was announced that Punjab National Bank would acquire Oriental Bank and United Bank of India; Canara Bank would acquire Syndicate Bank; Union Bank of India would buy Andhra Bank and Corporation Bank; and Indian Bank would acquire Allahabad Bank.

Indian Overseas Bank, UCO Bank, Bank of Maharashtra and Punjab and Sind Bank have been left out of any consolidation plan so far, and Sitharaman had said then that they continue to function as earlier as they have strong regional focus.

Under two earlier rounds of consolidation (all during Narendra Modi government’s tenure), five associate banks and Bharatiya Mahila Bank merged with State Bank of India (April 2017), and Dena Bank, Vijaya Bank merged with Bank of Baroda which came into effect from April 2019.

Currently, in life, general, and reinsurance verticals, there are eight state-owned insurance companies. These are Life Insurance Corporation of India, General Insurance Corporation of India, National Insurance Co. Ltd, New India Assurance Co. Ltd, The Oriental Insurance Co. Ltd, United India Insurance Co. Ltd, Export Credit Guarantee Corporation of India Ltd, and Agriculture Insurance Co. of India Ltd.

The Union Cabinet recently scrapped the long-pending proposal of merging three unlisted state-owned general insurers - Oriental, National, and United India, and then taking the merged entity public. Instead, these could be among the candidates up for privatisation once a strategic sector policy is approved by the Cabinet.


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