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Synopsis: Two experts, viz. Montek Singh Ahluwalia (MS) and Professor Ajay Shah (AS), share their views over Asset Monetisation programme of the government.
How can govt go about monetising operational assets?
Both experts mention ways in which govt can pursue monetisation of assets:
|We need more infrastructure, but the public sector simply doesn’t have the resources to build it. Also, we have huge value embedded in the existing infrastructure. So, why not realize that value and let the public sector use the resources to build the infrastructure we need. There are two possible responses.||The government does not have the capacity to enter into contracts and deal with contract negotiations and difficulties. Similarly, many parts of the development process are difficult for private sector people to solve. Here’s a way out:|
Early development by the govt and then asset is sold: Government should do the early development of infrastructure, which is the high-risk phase, create an operating asset, and then sell the asset off to private people. So, the asset goes off the public balance sheet and into the private balance sheet.
The money collected by the government can go back into developing new assets. There is merit in this thought process given the constraints of state capacity in India.
Why the govt chose asset monetisation over outright privatisation?
|We should do both monetisation and privatisation because we don’t know what’s best.||Sale of an asset is much more practical rather than a reduced state domination|
Can we ensure that there’s no asset stripping by pvt investors?
Asset stripping means selling assets at a profit without regard for the company’s future. In this case, it means that after the contract period is over (let’s say 30 years), then the incentive for a pvt sector player to put money into the asset, to ensure that it remains productive even after the contract period ((in 31st, 32nd and 33rd year) goes down. This doesn’t happen when the asset is owned by the private sector player.
|Preventing asset stripping can be done via:||The question is how much complexity you want to build into a contract. The private sector is not comfortable entering into complex contracts with the Indian state. Now, that doesn’t mean that outright sale is easy. With an outright sale, we will still have a government regulator, and we will face the problem of regulatory capacity.|
The trade-off is about the cost of building regulatory capacity versus the cost of building contracting capacity.
Source: This post is based on the article “Is monetising public assets a good idea?” published in The Hindu on 3rd Sep 2021.