The government's reforms initiative received a boost on Wednesday with the Left parties giving their nod to restructuring the banking sector and the sale of a 5 per cent stake in Bharat Heavy Electricals Ltd through a public offer.
The Left go-ahead came at a meeting with United Progressive Alliance Chairperson Sonia Gandhi, Prime Minister Manmohan Singh, Finance Minister P Chidambaram, Defence Minister Pranab Mukherjee and Ahmad Patel, political secretary to Gandhi.
Communist Party of India (Marxist) leaders Harkishen Singh Surjeet and Sitaram Yechury, Communist Party of India's AB Bardhan and D Raja, and Revolutionary Socialist Party (RSP) leader Abani Roy represented the Left at the meeting.
Their green signal, however, comes with a rider -- the government would be required to park the proceeds from the Bhel public offer in a dedicated fund.
The government's plan for a consolidation of public sector banks was also cleared, though with another rider that no bank employee should be retrenched.
There were pre-conditions also for allowing 74 per cent foreign direct investment in private banks.
The Reserve Bank of India is in the process of issuing the rules, which would allow foreign investors to increase their stake in domestic private banks by 10 per cent annually.
The government, sources said, had agreed to the Left's pre-conditions. Although the CPI (M) was unwilling to go on record on their stand on reforms, a senior CPI leader admitted the Left had no other alternative but to accept the proposals.
According to the CPI (M), the issue was slated for further discussion at a pre-Budget consultation between the finance minister and the Left parties on February 1.
Chidambaram said there was still no roadmap for banking sector reforms and the Left parties wanted Indian banks to be protected from predatory takeovers and also ensure that there was no loss of jobs.
Yechury said banking sector reforms should ensure that while the base of public sector banks were strengthened, private banks must also be protected and steps taken to ensure that they did not collapse.
A CPI leader said Chidambaram had assured the Left that the government will hold 51 per cent stake in PSU banks at all times.