Recently, the Finance Minister announced the operationalisation of the National Monetisation Pipeline (NMP) ~ a plan to lease out Government owned assets to private parties. The Government expects a return of Rs 6 lakh crores from NMP, by 2025, by “unlocking value in brownfield infrastructure assets” across sectors ranging from power to roads and highways, railways, telecom towers, pipelines, power transmission lines, goods sheds, private trains, and the dedicated freight corridor. According to the Niti Aayog, that had conceptualised the NMP, more than 20 asset classes across 12 ministries, comprising 25 airports, 15 railway stadia, 31 significant projects in nine major ports, 761 mineral mining blocks, 160 projects in coal mining, 761 mineral projects, and two national stadia, would be monetised by NMP.
Government spokesmen have been at pains to clarify that no assets would be sold and the assets involved are ‘brownfield infrastructure assets’ i.e., existing assets that may be repurposed by the purchaser entity. The terms of lease like period of lease, upfront payment, model of revenue sharing, and the commitment of investments in the assets by the private party have been left unspecified ~ to be decided on a case-to-case basis. It would appear that assets in the roads and power sectors may be monetised, using the mechanism of Real estate investment trusts (REITs) and infrastructure investment trusts (InvITs) because these entities are listed on stock exchanges, facilitating public investment through the share market.
Roads and highway assets would probably be monetised by Operate Maintain Transfer (OMT) and Toll Operate Transfer (TOT) while the Operate, Maintain and Develop (OMD) model may be used for airports. According to the FM, land would not be transferred and operationally complete assets that are either languishing or are not fully monetised or are under-utilised would be offered to the private sector. Proceeds from NMP would be used to finance the Centre’s share in the National Infrastructure Pipeline.
Five sectors, roads (27 per cent), railways (25 per cent), power (15 per cent), oil and gas pipelines (8 per cent) and telecom (6 per cent) comprise 83 per cent of the assets proposed to be monetised. Roads and railways alone will contribute 52 per cent of the total NMP value.
For a purely economic decision, NMP has drawn a lot of flak from opposition parties that have accused the Government of selling crown jewels of the country. Mamata Banerjee went so far as to tell the PM that Government assets belong to the country and not to him or his party. Ministers Smriti Irani and Nirmala Sitharaman defended the Government’s decision; after launching a personal attack on Rahul Gandhi they pointed out that a Request for Proposal for leasing out New Delhi Railway Station had been floated way back in 2008.
Many questions, apart from the purely semantical ones, arise. Firstly, what has prompted the FM to come out with such a far-reaching economic decision, of a kind that is generally announced in the Budget? Is it the lesser than expected economic recovery during the first quarter of FY 21-22? Then, how would the asset monetisation proceeds actually be utilised; in asset creation or in meeting current expenses? Secondly, coupled with the ongoing disinvestment drive that envisions the sale of Air India, Pawan Hans, BPCL, SCI, IDBI, BEML and two un-named public sector banks and one un-named general insurance company, as also part sale of the Life Insurance Corporation plus the sale of excess land belonging to the Defence Ministry and the Railways, the public is really worried if the Government is planning a sell-out to private interests. Probably, the Government has proved true to its promise in the Budget that it would ask the Niti Aayog to identify the next lot of companies for strategic sale. As small change, ministries and Government departments are in a hurry to sell whatever is readily saleable, for example, the Aviation Ministry has already finalised the sale of its residual stake in Delhi, Mumbai, Bengaluru and Hyderabad airports.
Be that as it may, the public view with dismay the Government’s plan to cede control over assets that had always theoretically belonged to them. Significantly, only a negligible proportion of the assets currently being offered for lease have any worthwhile private investment. Another point of concern is the inevitable increase in the cost of services once Government assets are transferred to private parties. For example, the cost of tickets for privately operated trains would be much higher than for the trains operated by the Government, which would probably run at much slower speeds on an inconvenient time-table. We don’t have to look much beyond the downfall of Air India, BSNL and MTNL, that have been deliberately brought to their knees to facilitate the dominance of private players, to understand the inherent danger of bringing in private parties to run the railway system.
The third challenge in asset monetisation is purely logistical. The tight timelines given by the FM for monetisation of a host of assets would depend on quick finalisation of the terms of lease, which may not happen given the tendency of bureaucrats to play safe, fearing the ire of the 4Cs (Courts, CBI, CVC and CAG) that dissect all bureaucratic decisions with the benefit of hindsight. A case in point is the divestment of the Government’s stake in Air India that has been hanging fire for the last three years.
Another noteworthy failure is the inability of the Railways to privatise train running operations. To recapitulate, last year, the Government invited bids to run private passenger trains in 12 clusters across the rail network. The tender was worth Rs 30,000 crore. However, bids were received only for three clusters that too only from two entities, one of which was a railway PSU – the Indian Railway Catering and Tourism Corporation (IRCTC).
The current year’s target for disinvestment proceeds is set, rather ambitiously, at Rs 88,000 crore. According to experts, lack of a dispute resolution mechanism, regulated tariffs in the power sector, low interest among investors in national highways below four lanes, and the lack of independent sectoral regulators may dampen the interest of investors. There are some peculiar problems also. For example, the NMP document envisages receipts of Rs 7,281 crores from monetisation of Konkan Railway assets. However, the Government of India has only 51 per cent ownership of Konkan Railways; the balance is held by the Government of Maharashtra (22 per cent), Government of Karnataka (15 per cent), Government of Goa (6 per cent) and Government of Kerala (6 per cent). Bringing on board all the other stakeholders may not be easy.
A long-term lease is in essence a sale; the Government’s claim of not selling any assets but only leasing them out has to be taken with a pinch of salt, given the fact that certain concessions may run interminably ~ like the contracts for running private trains were to subsist for thirty-five years. Before embarking on wholescale disinvestment, we would do well to heed the warning of Joseph Stiglitz, Nobel Laureate and former World Bank Chief Economist: “The rhetoric of market fundamentalism asserts that privatisation will reduce what economists call the ‘rent seeking’ activity of government officials who either skim off the profits of government enterprises or award contracts and jobs to their friends. But in contrast to what it was supposed to do, privatisation has made matters so much worse that in many countries today privatisation is jokingly referred to as ‘briberisation.’… In country after country, government officials have realised that privatisation means that they no longer needed to be limited to annual profit skimming. By selling a government enterprise at below market price, they could get a significant chunk of the asset value for themselves rather than leaving it for subsequent office holders. In effect, they could steal today much of what would have been skimmed off by future politicians.” (Globalisation and Its Discontents, 2002).