About seven decades ago, the Indian government under Prime Minister Jawaharlal Nehru nationalised three major entities. One of them — State Bank of India (SBI) — is celebrating the 70th anniversary of its reincarnation this month. The second — Life Insurance Corporation (LIC) — will mark 70 years of nationalisation in 2026. And the third should have celebrated its 70th anniversary of nationalisation two years ago, but could not do so as it was privatised just a year before turning 70 as a nationalised outfit. This was Air India.
The trajectory of these three enterprises that embarked on their individual journeys over the last seven decades tells the story of how Indian governments over the years have looked at the ownership pattern of economic entities — and what could determine the future of their ownership pattern. A close examination of the key factors at play would be instructive.
A common factor uniting the three entities is that they all belonged to the services sector. One was providing aviation services and the other two were providing financial services — offering banking and life insurance facilities to customers. They were all touching the lives of people in ways many heavy industries or manufacturing companies would not. The government’s approach to their ownership was perhaps influenced by that realisation. Interestingly, Nehru’s nationalisation was largely focused on taking over businesses operating in the services sector, in contrast to his daughter Indira Gandhi, who nationalised not just banks and general insurance companies, but also companies in the industrial or mining sector, like textiles and coal.
Looking back, the strategy behind nationalising the Imperial Bank of India and renaming it SBI seems to have paid off. Over the past seven decades, SBI has grown stronger, retaining its status as the country’s largest commercial bank. From a national point of view, SBI has also played a major role in helping the government of the day to manage many crises and achieve its governance goals.
These included SBI meeting the credit needs during the India-China war in 1962 through a special scheme; shipping 20 tonnes of confiscated gold to a Swiss bank to help India procure $240 million in May 1991; raising $1.6 billion under the India development bonds scheme later that year to bail the country out of its precarious balance of payments situation; and launching the Resurgent India Bond scheme in 1998 to raise $4.2 billion from non-resident Indians to bolster the government’s foreign exchange reserves.
It also took the lead in promoting the government’s financial inclusion plan by opening Jan Dhan accounts, the largest among all banks. And when the government launched the controversial electoral bond scheme in 2018, which permitted anonymous donations to political parties, it was once again SBI that was authorised to operate it till the country’s apex court declared it unconstitutional in 2024.
Yet, questions have been raised about the governance structure of SBI. Should the government, as its majority shareholder, continue to play a key role in appointing its top management, including the chief executive, or should it allow the regulator, the Reserve Bank of India, to treat it like any other private-sector bank and decide on its leadership? This has been a bone of contention once in a while between the regulator and the government.
With over 57 per cent of its equity being owned by the government and the rest widely held by the public, SBI, has never been a candidate for privatisation or even further disinvestment. The country’s top bank is treated as a strategic asset and all governments have believed in retaining its status as a public sector entity. There is little doubt that SBI’s ownership pattern will remain unchanged, even though the debate over the nature of regulatory oversight and procedures for appointing its top management is likely to continue.
LIC, India’s largest life insurance company, will complete 70 years as a nationalised entity in January 2026. In 1956, the Nehru government promulgated an ordinance to nationalise as many as 245 Indian and foreign insurers operating in the life insurance sector and merge them into a single entity — LIC. The government justified the decision on the grounds that there was widespread corruption in the sector and life insurance services to the people were adversely affected.
In a quiet operation, C D Deshmukh, the finance minister at that time, chose to address the nation on All India Radio to announce the government’s decision to nationalise the life insurance industry and create LIC. For a little over 40 years, LIC enjoyed a monopoly over life insurance services in India, until other private sector players were allowed into the market after 1999. But LIC has continued to retain its number one status in the life insurance sector over the past 25 years.
In 2022, the government decided to list LIC on the bourses and shed a 3.5 per cent stake through a public offer. It has authorisation to sell up to 20 per cent of its stake to foreign investors, but less than half a per cent of that limit has been used so far. Over the next few years, the government has the flexibility to reduce its stake from 96.5 per cent to over 50 per cent. But given the current lukewarm approach to disinvestment and the government’s resources position, such stake dilution is unlikely.
LIC is a profitable company and its current share in the first-year life insurance premium income in the country is over 57 per cent. The combined first-year premium income business of all private-sector life insurance providers is smaller than that of LIC. But, as in the case of SBI, governments over the years have used LIC to undertake operations at their behest — whether to support a falling market or to acquire stakes in companies to ward off a takeover threat. In the years ahead, therefore, the government may reduce its stake in phases from the current level, but it will continue to be a majority owner of LIC.
The case of Air India, which was set up by the Tatas in 1932, is completely different. After the Nehru government decided to nationalise both the civil aviation industry and Air India, the airline expanded its international operations. However, its financial performance was poor and got worse after the aviation industry was thrown open to private players in 1994. In 2007, the government merged Indian Airlines, another state-owned aviation company operating domestic services, with Air India. But the losses kept mounting and after several unsuccessful attempts, the government finally managed to privatise Air India in 2022. Air India’s journey since the Tatas bought it back has been rocky. The government has every reason to feel relieved that it no longer has to use taxpayers’ money to finance the losses of a state-owned enterprise.
The nationalisation story of these three entities has one clear message. If an entity is to be retained under state ownership, the government must ensure it remains profitable, does not become a drain on the exchequer’s resources, and plays a strategic role in the government’s overall plans for economic development. Enterprises that do not fulfil these conditions have no reason to continue to operate as public sector units. This was broadly the spirit of the government’s public sector policy enunciated in 2021. The lessons from these three nationalisations once again underline the need for pursuing that policy.
AK Bhattacharya is the Editorial Director, Business Standard. He tweets @AshokAkaybee. Views are personal.
good but what about the corruptions in these 3 entities that left them bleed?