Nationalisation of private sector banks was carried out during the decades of seventies and eighties by the Indian state with the aim to widen and deepen the path of capitalist transition in India. In the beginning of seventies the crisis of Nehruvian path to development of Indian capitalism was evident through the growing influence of monopoly capital and the resultant impediments to deployment of bank finance for the broadening and deepening of the roots of capitalist class in India. This required the Indian state to liberate the banking sector of the country from the clutches of the well entrenched groups of big business in finance at that conjecture. A section of big business controlled the financial sector through its ownership of private sector banks whose interest in the upgrading of development finance function of banking was minimal. Private sector control was not allowing the banks to expand the function of development finance; the pace of capitalist development had slowed down. The Indian political bureaucratic apparatus had to take the route of adoption of the programme of nationalization to break the barriers to development of capitalism.

In fact, the emergent barriers to capital accumulation were not limited to finance. Barriers prevailed with regard to the up gradation of production capabilities in respect of the unmet needs of energy and power. These sectors required the Indian state to step in with investments of longer-term horizon. Basic infrastructure had to be created through the development of public sector enterprises in energy and power. Coal and Oil were nationalized. The programme of nationalization was necessary for the Indian state succeed with the challenges facing the agenda of widening of the base of the capitalist classes within agriculture and industry. In order to accelerate the pace of transition to capitalism the programmes of green revolution, import substitution, micro, small and medium scale enterprise development, and export diversification in making at the initiative of the political-bureaucratic apparatus. These initiatives induced the ruling classes to adopt the programme of nationalization of private sector banks at the beginning of the decade of seventies.

Alignment of the government of the day with the programme of nationalization occurred through the government formed under the leadership of Indira Gandhi. It needs to be recalled that this alignment had also split the Congress party. Commitment to the implementation of the programme of nationalization of banking and energy was an important political development for the post-independent India. Right from the time India gained political independence the left had been advocating for the nationalization of assets of foreign and domestic private monopoly capital in the interest of the implementation of transitional agenda which included the demand of making a clean break with the pathways enabling the foreign and domestic monopoly capital to increase their hold over the Indian economy. As this programme also served quite well the wider needs of the ruling classes at that conjecture the programme of nationalization sailed through till almost the nineties and didnā€™t experience active political opposition from the vast majority in the ruling classes.

The emerging barriers to development of productive forces within the sectors of agriculture and industry could be broken in part which served the need of the diversification of big business in to new areas of trade and industry. The Indian capitalism saw the expansion of private investment in agrochemicals, pharmaceuticals, tractors, transport equipment, coal, oil, steel and many other such areas. Development finance function grew in strength. Finance for agriculture also benefitted from the programme of nationalization during the decades of seventies and eighties. The capitalist class could diversify its base in the trade and industry as a whole. While with the interest of Indian industrial capital no more being limited to reaching credit and finance to the older sectors coevolving since the colonial period, the capitalist class should have been able to develop a stake in upgrading the function of development finance. With the liberalization of financial sector there has occurred the expansion of finance capital whose interest lies in weakening the public sector banks in India.

The reversal of programme of nationalization

Finance capital is today a key actor mobilizing support for the programme of denationalization of banking. Finance capital has a deep stake in moving away the public sector banks from taking up the function of development finance in India. Finance capital has been trying to move not only the public sector banks towards the approach of profit maximization in the short run but also moving the capitalist class as a whole towards a more liberalized and globalized system of production. During the period of last three decades the programme of nationalization carried out in all the different forms and shades has been eventually made to whittle down by the Indian state too. The programme of nationalization has also been associated with elimination of the domination of foreign capital from domestic economic activity. The return of foreign and domestic monopoly capital has also been an important factor in the reversal of fortunes of the public sector banks. Initially the nationalization programme stated that the foreign controlled units would be asked to reduce the share of foreign equity and management of assets and operations by the foreign managers in India.

It is important that the question of why it has become so easy for the Indian state to go on to the path of reversal in very many ways the programme of nationalization and how can the democratic movements of the people make the Indian state to reverse the reversal of nationalization at the current conjecture. The answer is that the fight for ā€œpublic purposeā€ of the public sector banks, which has got diluted over the period, would have to be fought as one of the most important challenge facing today the trade unions of the bank employees and the peoplesā€™ movements. Since the fight for return of development finance is also a key element of the same struggle it needs to be noted that the processes of mobilization of the people would have to be today undertaken with the help of even a broader political economy perspective. Our struggle will have to be not just for the fight for a deeper financial inclusion of the urban and rural poor but also the fight for a much wider and deeper upgrading of development finance function.

Are we seeing a return of development finance through NFBID?

The National Bank for Financing Infrastructure and Development Act, 2021 proposes to establish the National Bank for Financing Infrastructure and Development (NBFID) as the principal development financial institution (DFIs) for infrastructure financing. Unlike banks, DFIs do not accept deposits from people. They source funds from the market, government, as well as multi-lateral institutions, and are often supported through government guarantees. NFID will be governed by a Board of Directors to be nominated by the central government. Although the board constitution allows for a few independent directors that too to be nominated by the Central government, but the rest of directors would be nominated by the shareholders involving the representatives of finance capital. Experience tells us that the nomination of independent directors cannot be expected to move in the direction of the Modi government promoting through them the public purpose of development banking.

During the period of last three decades the programme of infrastructure development was limited to the development of highways, airports and port development and big ticket projects of all kinds under implementation as public-private partnership (PPP) projects where the profits have been appropriated by the big business and the NPAs have become the peoplesā€™ burden. Experience also tells us that the big business has not been taking much risk while getting involved in these partnerships. It has not been even putting its own money into these projects. These projects are serving the ā€œdevelopment needsā€ of a narrow kind.

With the broader social and the wider economic objectives of self-reliance having not been fulfilled the challenge of bringing in non-market calculations of climate, environment and public health into development is not to be on the agenda of the new entity. The programme of infrastructure would be costlier. This new entity would have the compulsion to orient the projects away from the realization of common good. Going forward, the other issue based on the experience of the last three decades with the PPPs there are very few projects which have not faced cost escalation. Ultimately the performance of this new entity would depend on one, how the benchmarks for performance evaluation are going to be determined and whether the state legislatures and parliament would have a say in the governance.

Concluding remarks

Transparency and accountability would have to be the important pillars of governance of NFBID. Independent directions are no guarantee for the realization of the stated goals of infrastructure development. Certainly the new entity will need political oversight of the legislatures and parliament. These institutions would need to develop the required capacity to oversee the implementation of development finance in its new avatar. How this would happen is a big question in the domain of development finance? In my view, how ready we are as citizens and employees to influence the performance measurement and the institutional governance would be ultimately determining the outcomes of this new experiment in infrastructure and development finance.

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