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Synopsis: Monetisation of assets to generate value is a step in the right direction, but the underlying problems and challenges that led to underutilization of these assets need to be ascertained too. Proper execution of NMP based on a policy which is refined gradually as per the feedback received is the way forward.
What are the problems with the NMP?
Poor record on privatization: The record on privatization of the Indian government has been abysmal. Every year, a massive disinvestment target is set and then missed. Alternatively, public sector companies are pushed to buy other public sector firms and that’s passed off as disinvestment.
The privatization process of Air India has been on for a few years and so has the talk of privatizing public sector banks.
The initial public offering of Life Insurance Corporation (LIC) of India, which finance minister spoke of in her budget speech of February 2020, is still a work-in-process.
In the recent case of Indian Railways trying to attract private players to run 150 trains, the plan failed because private operators feared continued government interference.
Hence, when privatization of assets is not being achieved easily, the idea of monetizing assets through operational leases is much more difficult to execute.
Moreover, the bulk of litigation in the courts consists of cases in which the government is a party.
Underestimation of the potential of public assets: NMP views public utility assets through the narrow lens of finance only and thereby, underestimates their potential contribution to public welfare. It absolves the government from the responsibility to unlock the intrinsic social value of these assets.
No built-in safeguards: NMP is designed to attract rich financial institutions (PE firms) and industrial groups due to high valuation of assets. The result will be a deepening of the concentration of capital and existing inequalities. There will be economic and social implications. The model does not build in safeguards to manage or mitigate these implications.
Structural problems: The government should have identified as why have these assets been so poorly managed. Was it because of bad leadership, inadequate talent within the PSEs, and/or systemic and structural shortcomings? The low productivity, in most cases, is because their PSE operators have faced a combination of systemic hurdles related to weak dispute resolution mechanisms; regulatory problems; lack of transparency in governance; pricing distortions and intrusive bureaucratic intervention. Until and unless these systemic problems are addressed, the private sector will find it difficult to harness the full value of the assets and the transfer of operatorship to them will offer at best a partial solution.
What steps does the government must take?
Independent regulators: The sectors where government assets are being monetized need independent regulators.
No excess litigation: The government needs to stop being a happy litigant.
Addressing structural problems: If the systemic problems with PSEs get addressed, they could well be the better custodians of the assets. This is due to the fact that the government being the majority shareholder will have presumably mandated them to look beyond just the accumulation of financial value.
Source: This post is based on the following articles:
- “National Monetization Pipeline and the infrastructure deficit” published in The Hindu on 6th Sep 2021.
- “National monetization pipeline betrays narrow outlook“ published in The Indian Express on 6th Sep 2021.
- “The incredible certitude of our asset monetization programme” published in Livemint on 6th Sep 21.