Media365
Has Prime Minister Narendra Modi’s governance brought about winds of change? Modi has just commenced his 26th year in public office. The IDBI strategic disinvestment, the largest FDI in India’s financial sector, carries a broader significance. The cabinet’s decision to divest it to a private entity, Fairfax, is a major step toward improving the efficiency of financial intermediation. It could signal lower capital costs. Even so, it will be a long haul.
The arc of capital reform has come full circle: From nationalising private banks to privatising a national bank. This matters because India’s cost of capital remains above that of ASEAN peers, weakening competitiveness. Within the domestic regulatory framework, the legacy burden of the cash-reserve ratio, statutory liquidity ratio and priority-sector lending circumscribes optimum credit allocation. A banking system steeped in PSU culture may not consistently give Indian entrepreneurs capital at a globally competitive cost.
In the past, I have lamented the tardy pace of reforms in India’s factors of production (land, labour, capital) despite the big changes of 1991. Post-Independence India was shaped by Fabian Socialism and a deep distrust of private capital. The nationalisation of 14 banks in 1969, and six more in 1980, brought 91 per cent of banking under public control. Political lending and recurring bad-loan crises were the deleterious features of this model.
I recall the mixed opinions when private banks in India were nationalised. That was an era of political dependence on left-oriented policies. The much-applauded far-reaching economic reforms of 1991 bypassed the structural changes needed in other factors of production. It took PM Modi’s leadership to implement the four labour codes. Land and agricultural reforms have encountered political constraints. IDBI’s divestment builds on the asset monetisation model launched during the pandemic.
The matrix of Modi’s governance is captured by Lee Kuan Yew’s maxim: “Policy is implementation; implementation is policy.” Six Cs stand out clearly in the model rehearsed in Gujarat but refined and implemented in Delhi.
First, consistency. Modi inherited a state recovering from the Bhuj earthquake and recast governance from an administrator-oriented approach to one centred on enabling. Vibrant Gujarat (2003) signalled investor confidence through “minimum government, maximum governance”. In Delhi, that focus on delivery has powered Jan Dhan, Aadhaar, UPI, Swachh Bharat, Ayushman Bharat, IBC, GST, DBT and PRAGATI.
Second, continuity or the capacity to judge what works amongst programmes he inherited, while recalibrating them for greater development. Aadhaar has been scaled into one of the world’s largest digital public infrastructures. VB-G RAM G builds on MGNREGA, retaining its statutory employment guarantee while raising it from 100 to 125 days and linking employment more closely to durable rural assets, livelihoods and infrastructure.
Third, creativity. Embracing cutting-edge technology is an attribute of Modi’s leadership and a true expression of Schumpeterian “creative destruction”. PRAGATI uses digital technology to connect him directly with secretaries and chief secretaries and resolve stalled projects. Oversight was centralised; execution decentralised. With Jan Dhan and UPI, Modi revolutionised large-scale benefit delivery. He pushed PSUs and PSBs to shed the habits of a bygone era. There can be no creativity without audacity. But every audacious decision carries risks. In Gujarat, the Sardar Sarovar canals advanced a dream deferred for decades. As chairman of the 15th Finance Commission, I watched Narmada water pumped against gravity into Saurashtra and Kutch. Resolve, engineering and sustained execution justified the slogan, “Modi hai to mumkin hai.” Viksit Bharat 2047 extends that horizon to the nation.
Fourth, sustained efforts to persuade and build a consensus. The Nobel prizes to Daniel Kahneman and Richard Thaler recognised behavioural economics and “nudge” theory. Modi has mastered both, reaching people through Mann Ki Baat, Swachh Bharat and Beti Bachao Beti Padhao. The GST Council is a unique experiment in pooled sovereignty: Modi persuaded states to vest their taxation sovereignty in a body of which they are members. This cooperative federalism could extend to state-level regulation, audit and procurement, with the Finance Commission as constitutional anchor for sharing best practices. Decisiveness need not shade into authoritarianism.
Fifth, commitment. The fiscal glide path has survived a pandemic and more than halved the central fiscal deficit. Under the IBC, gross NPAs fell from 11.2 per cent in 2018 to 1.8 per cent in 2026. Inflation targeting anchored monetary policy. For the first time, effective capital expenditure (4.4 per cent of GDP) exceeded the fiscal deficit (4.3 per cent). PM Gati Shakti maps over Rs 100 lakh crore of infrastructure across 16 ministries. Make in India 2.0, PLI and the Semiconductor Mission drove structural reform. Solar capacity surpassed India’s Paris climate pact targets five years early.
Sixth, calibration. The old world order has dissolved, and multilateralism is being displaced increasingly by plurilateral, if not bilateral, transactional mercantilism. The challenge remains of harmonising the past with the emerging new order. Nine FTAs signed by the Modi government cover 38 countries. The G20 and BRICS presidencies gave the Global South and Africa a greater voice.
As our aspirational electorate seeks new promises, what are the challenges? Five priorities will shape Viksit Bharat. First, faster growth through productivity, competitiveness and adherence to the fiscal glide path. Second, completing factor-market reform, with financial intermediation efficient enough to bring our cost of capital on par with international levels. Third, a modern legal architecture that enables faster dispute resolution, stronger contract enforcement and investment protection. Fourth, manufacturing beyond assembly, backed by efficient power, logistics and urban infrastructure. Fifth, quality jobs, skilling and R&D, balancing AI adoption with job creation.
The most proximate reason for writing this piece is the broader reforms to enhance financial intermediation. This is laudable. However, one should not arrive at premature conclusions about the privatisation of public-sector banks. We know one swallow does not make a summer. But we also know that once a firmly locked door is even slightly opened, the winds of change can make it ajar over time. Could IDBI be an example of these winds of change?
The writer was chairman, 15th Finance Commission
