–Kakali Das.
The Finance Minister recently unveiled a 4 year – National Monetisation Pipeline (NMP) that, based on the announcement by the government, would generate 6 lakh crore rupees in revenue for the government by “unlocking value in brownfield projects by engaging the private sector, transferring to them revenue rights and not ownership in the projects; and using the funds so generated for infrastructure creation across the country.” It means, basically, that the government will lease out the highways, bridges, warehouses, the airports etc. built by the government so far (with tax payer’s money) to the private sector, and provide the private sector the right to earn revenue from these assets, and use the money to be received by the government to build more infrastructure. To the uninformed, “green field project” means when an empty green field is handed over to build infrastructure on it whereas, a “brown field project” is a project which has already been constructed, posing no risk of receiving environment clearances or a PIL going to High Court which would stale the development. Now, by monetising these assets, the government will get hold of a one-time lease money on these developments. The government said that it has made these announcements 4 years in advance so that the investors can be thorough with the list, prepare, and understand the problems associating this challenge.
The kind of assets that will be monetised are 26,700-km of roads, railway stations, train operations, power transmission lines of 28,609 ckt km, hydroelectricity and solar power projects of 6 Gw, 14,917 towers of the telecom sector (BSNL and MTNL), natural gas pipelines of 8,154 km, 3,930 km of petroleum product pipelines, 50 railway stations, 25 airports, 160 coal mines, 9 major ports and 210 lakh metric tons of ware housing assets and many more.
The opposition which criticised the government said that the government is hawking assets that the country has built for the last 70 years, and that it will hand these assets over to its ‘friends’ (insinuating, basically, Adani, Ambani etc. and their companies). As we know, in the last two years of Adani entering into the airport business, it is now the largest controller of Airports in the country; one in every four air passages in our country belongs to Adani Airport. This is what, the Congress hinted, will continue if the government is allowed to auction off these assets.
How will these assets suddenly generate revenue? Well, the private sector will charge citizens to use these assets. Effectively, the citizens who have already paid to build these roads, airports etc. through taxes, will now have to pay to use these roads and airports for the private sectors to make money. So, is the Congress fair in its criticisms, or is it jumping the gun?
“I have nothing against the principle of monetising public assets, provided the money is used to create more assets, and get into a cycle of creating more assets,” Mohan Guruswamy, Economist said.
During the Independence Day speech made by the Prime Minister in the Red Fort, he announced a 100 lakh crore rupee infrastructure development programme. Incidentally, this announcement was also made twice before, over a span of four years. Here, there are hundreds of assets of roads, ports, airports etc. which is a plan of, approximately, 6 lakh crore rupees over 4 years. What about the remaining 94 lakh crores rupees? Where will all of that come from?
“In principle, it is a good idea and it should be pursued. Partly, it has been forced upon the government because the silent fiscal crisis was brought upon the government by itself through poor economic management, which is why the economy was slowing even before the pandemic very severely. The impression from this huge announcement reminds me of the 15 lakh crore rupee scheme announcement of Atmanirbhar Bharat. What we have received is the evidence on the investment announcements in the last several years, and the actual achievements which are a fraction of it. So, that’s the reality,” Prof Santosh Mehrotra said.
This massive announcement of 13 sectors together alone account for 52% of the 6 lakh crore rupees, and more. Regarding the requirements, Prof Mehrotra said that huge competence in designing contracts is required; massive capacity is needed within the government in order to design contracts with the private sectors which are much smarter than anyone in the government. So let’s not pretend that we have the competence. Similarly, do we have the regulatory capacity in each of these sectors to manage these 13 sectors in which hundreds of projects are supposed to be made out? Do we have the monitoring capacity to ensure that once the contract is being signed, it is being implemented in the way it is supposed to be implemented?
“All these requires a kind of human resource capacity within the government which I don’t think is visible today. It’s not going to be implemented in the grand scale over the 4 years that we are being told it is, because we have seen what happened with the disinvestment plans,” Prof Mehrotra further said.
But, by handing over the maintenance and the toll collection work to a private company, the country might be able to attract foreign pension funds, insurance companies etc.; while the Canadians, the Australians have already driven in in the road sector, the Japanese are planning to enter too. It may well be that their business model is such that they may raise the tolls.
Moreover, the government has, already, watered down the labour laws in the country. Does this kind of privatisation mean people, across all of these services, losing jobs, or having to settle for far lower pay or benefits?
On being asked what the hurry was to announce a decision like this at this point of time, Prof Arun Kumar, Economist said, “By this, the government is going for supply-side policy; in other words, if you give incentives to businesses, they will invest more, and investments are down as we are all aware of. Investments had peaked in 2012-13 at about 37%, it came down below 30% before the pandemic, and it has come down even further post the pandemic. So, if investments don’t go up, the rate of the growth of economy doesn’t go up.”
Now the question is – Will this kind of an incentive that has been given to the private sector result in a change?
“There won’t be any change considering the RBI data which says that the consumer confidence is down. Consumer confidence in February 2020 was at 105, and by January 2021 it has come down to 55.5. In other words, even when the government was saying that the economy was recovering at a positive rate and there was growth in the fourth quarter, but consumer confidence hadn’t returned. Similarly, capacity utilisation data, according to RBI was above 70 in January 2020, and had come down to 63 by January 2021, and in the second phase of the pandemic it came down to below 55. Now, when capacity utilisation is down, investments don’t take place,” Prof Arun said.
On being asked, if the investments will take place in the level at which the government is saying, the Prof further said, “What this monetization is doing is capitalising the income stream from an asset. But when the income stream is down, the asset value will also be down. And this was witnessed earlier during privatisation; the income stream of the public sector which was privatised came down, and it was monetised at a much lower value than what it could have been monetised at. The same can happen at the present too as the income stream has come down, given the pandemic and other factors. Therefore, the monetisation will take place at a much lower valuation than what its actual value would be if the income stream was higher. Therefore, in this sense, the public sector and the government would lose resources as a result of this privatisation taking place.”
The real issue is that the demand is low, and hence consumer confidence and capacity utilisation is low too. What the government should have focused on was on generating demand by putting money in the hands of the people who have lost employment and income. Now, since the demand is low, the private sectors which will get hold of the assets may fire people to make profits, resulting in the rise of unemployment. Wherever privatisation has taken place, it is said that the laboured will be displaced from the private sectors. On the contrary, there could be sign of over employment too; but at the present where employment is a record high it’s no joke to create further unemployment in the economy.
“This scheme will prove to be counterproductive in terms of revival post the pandemic and the lockdown The conditions prevailing now is not suitable for privatisation,” Prof Mehrotra said.
What we have witnessed in the past is that the public sector assets have been sold much cheaper than what land they were on. For an instance, once BSNL was sold off to the Tata, they have shut it down and got hold of the huge amount of land that was available with BSNL in the various cities. So, the history of privatisation in India has not been a great history of privatisation. Another example is of Russia cornering the public sectors in the country, and the private sectors generating huge sums of money. Evidently, this is the history of privatisation. Conclusively, according to me, asset monetization is nothing but outright sale. Leasing out assets for multiple decades is equivalent to selling the assets. Now, time will unveil how these decisions by the government pan out, and in whose favour – ‘the countrymen’ who the government must serve, or ‘the two families’ who the government has pledged to be a slave of.