Dr Santosh Kumar Mohapatra*
The cash-strapped Indian government, on August 23, launched the National Monetisation Pipeline (NMP) comprising Brownfield assets (i.e., existing assets) with an aggregate monetisation potential of Rs 6 lakh crore ($81 billion), which will be available for lease/licensing to private investors over four years, from 2021-22 to 2024-25. For the current fiscal, the target is Rs 88,000 crore. Brownfield projects/assets means already created assets while green field assets mean new investment in any assets.
The pipeline has been developed by NITI Aayog, in consultation with infrastructure line ministries, based on the mandate for ‘Asset Monetisation’ under Union Budget 2021-22. The NMP will run parallel to the infrastructure creation roadmap of the government from the current financial year. In other words, NMP has been planned to be a co-terminus with the remaining four-year period of the National Infrastructure Pipeline (NIP). Prime Minister Narendra Modi’s latest announcement of Gati Shakti infrastructure plan will build upon the National Infrastructure Pipeline (NIP).
While traditional sources of capital are expected to finance 83–85 per cent of the Rs 111 lakh crore infrastructure expenditure committed under the NIP over five years, around 5.4 per cent of the total NIP funding is expected to be mopped up through asset monetisation. The Centre’s share is about 39 per cent in the Rs 111 lakh crore. The state government will be incentivised if they embrace this venture.
The plan covers 20 asset classes spread over 12-line ministries and departments. Roads, Railways, and power sector assets will comprise over 66 per cent of the total estimated value of the assets to be monetised, with the balance coming from sectors including telecom, mining, aviation, ports, natural gas, and petroleum product pipelines, warehouses, and stadiums. The top three sectors by value are roads (Rs 1.6 lakh crore), Railways (1.5 lakh crore) and power (Rs 85,032 crore).
Among the projects, the government has identified 26,700 km of roads across 22 stretches, 400 railway stations, 90 passenger trains, 28,600 km of transmission lines, Bharatnet fibre network, and BSNL and MTNL towers. Other core infrastructure assets which will be leased out are public warehouses, civil aviation and port infrastructure, sports stadiums, and mining assets.
Global players such as Blackstone, Blackrock, and Macquarie have shown interest in participating in the monetisation process. The likes of Canada Pension Plan Investment Board, Brookfield Asset Management Inc., Australia’s Macquarie Group Ltd. and Singaporean sovereign wealth fund GIC Pte., as well as local financial institutions are all likely to bid for public assets on offer.
WHAT IS MONETISATION?
Many think that monetisation is just opposite of demonetisation. It is quite wrong. Demonetisation means withdrawing value of currency or making a currency lifeless, valueless. But monetisation cannot be told adding value to currency. The action or process of earning revenue from an asset, business, etc. is known as monetisation. But monetization literally means to convert something into money. In practice, this means turning things into revenue-generating activities, services, or assets.
In banking, the term refers to the process of converting or establishing something into legal tender. While it usually refers to the coining of currency or the printing of banknotes by central banks, it may also take the form of a promissory currency.
By contrast, monetisation of deficit, otherwise known as monetisation of debt is the monetary support the Reserve Bank of India (RBI) to the Centre as part of the government’s borrowing programme. In other words, the term refers to the purchase of government bonds by the central bank to finance the spending needs of the government. In other words, RBI prints currency and lends to government instead of government resorting to market borrowing to bridge a part of fiscal deficit. Fiscal deficit means excess of expenditure over non-borrowed assets.
In a monetisation transaction, the government is basically transferring revenue rights to private parties for a specified transaction period in return for upfront money, a revenue share, and commitment of investments in the assets. In other words, the monetisation plan entails private companies taking over these assets on lease and running them for a pre-determined period of time on specific conditions. Here the government will lease its assets to highest bidder for a specified periods of time (say 25 years) in exchange of lump sum payments determined through auction.
Real estate investment trusts (REITs) and infrastructure investment trusts (InvITs), for instance, are the key structures used to monetise assets in the roads and power sectors. These are also listed on stock exchanges, providing investors liquidity through secondary markets as well. In the power sector, five assets were monetised via PowerGrid InvIT raising around Rs 7,700 crore. Similarly, the road sector has already monetised 1,400 km of its highways projects worth Rs 1,700 crore.
THE INTENDED OBJECTIVES OF THE ASSET MONETISATION
Opposition leaders dubbed the monetisation plan as ‘legalised loot and organised plunder’, a ‘grand closing-down sale’, ‘dangerous’ move, and a surreptitious way of handing invaluable public asset- created over decades to a chosen few. The hashtag “#StopSellingIndia” is used to mark protest against this initiative.
Rebuffing opposition, Finance Minister Nirmala Sitharaman said that monetisation will explore innovative ways of private participation without transfer of government ownership and whatever resource obtained by monetisation, same can be put in for further investment into infrastructure building.
Finance Minister further said: “There is no land here, this entire National Monetisation Pipeline (NMP) is talking about brownfield projects where investments have already been made, where there is a completed asset which is either languishing or it is not fully monetised or is under-utilised. So, by bringing in private participation in this you will be able to monetise it better and ensure further investment in infrastructure building. By saying that assets are languishing or underutilised, she exposes the inefficiency of her government. Further, question arises which interest will induce investors to invest in assts that is languishing.
Further, she cited some cases of asset monetisation done during UPA regime to justify her decision. But she did not mention that her party had opposed the same move during the UPA regime. Justifying own wrong policy by citing that of previous regime means you are no way better that your predecessors. Nonetheless, for Indians, question is not what previous regime had done, but how such steps are going to help Indians.
But asset monetization involving most vital assets worth gigantic amounts is not the same as asset monetization of a trivial amount of UPA regime. Now, such a gargantuan amount of asset monetisation shows the bankruptcy of the government which is failing to raise resources by taxing rich, corporates and curbing tax evasion. This is clearly reflected in our abysmal tax-GDP ratio, one of the lowest in the world.
The government is defending its decision by labelling monetization as an act of just leasing national infrastructural assets to generate revenues to create new infrastructure. But the government obscures the fact that the leaseholders of those infrastructural assets will not be guided by philanthropy. There will be deliberate undervaluation of assets only to enable the corporate behemoths to take over those vital infrastructural assets at a pittance.
The government argues that monetization aims to unlock 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. But why government does not ask investment in greenfield projects. Why private sector feels safe to derive profit from projects built upon tax payer’s money instead of building new infrastructure. If monetisation is good and has unlock value, then all national infrastructural assets should be monetised as early as possible including parliament.
Some argue that the logic behind the recycling of assets proposed by the National Monetization Pipeline is simple to avoid increasing taxes or the fiscal deficit. But increase in taxes is best option. Increase of taxes does not mean increasing indirect tax like fuel taxes which is regressive. The government should impose higher taxes on rich, wealthy, corporate honchos, billionaires, and celebrities. The government can reintroduce wealth tax too.
Everybody says the process of converting assets into economic value is termed as Asset Monetization. But nobody says that people will bear the cost in form of introduction of user’s fees or rising user fees. Monetisation of assets involves the process where burden of government is transferred to leaseholders and leaseholders transfer same burden to common people after adding colossal profit.
Simply, it is a gradual process of privatisation of national assets masqueraded as asset monetisation to hoodwink masses. Under the garb of asset monetization, the leaseholders will be profiting out of this venture and will charge exorbitant rent from users of those infrastructure assets. This is nothing but a way of weaponizing corporate, rich to loot and plunder national assets which will bring untold miseries to the masses through a massive hike in user’s fees. Ultimately, burden will fall upon consumers/users but benefits will accrue to lease holders.
Sitharaman said the asset monetisation programme is aimed at creating employment opportunities, enabling high economic growth, and seamlessly integrating the rural and semi-urban areas for the overall public welfare. But question is how, it will create employments and increase growth. Investors will trim expenditure by increasing working hours or reducing work force or trimming wages so as to maximise their profit over a limited time frame. Investors would naturally want to raise prices, limit competition or cut back on upkeep. There will be no permanent employment. Further, during end of lease period, they will totally ignore maintenance aspect and will hand over to government in dilapidated condition which may force government to extend lease period or sell them.
Finance Minister says they are all de-risked (risk eliminated) assets, and the value from the consideration and private investment which will come into maintaining it and optimally utilising it will generate greater value and unlock resources for the economy. But does India have the legal and regulatory mechanisms to truly de-risk politically sensitive infrastructure before asking the private sector to put a price on it? Actually, profit will be transferred to lease holders while risk will be borne by government and financial burden will be imposed on people.
Arguably, with such a wide variety of sectors, there cannot be a one-size-fits-all concept. But, even though the Department of Investment and Public Asset Management (Dipam) had already set the ball rolling on asset monetisation in March 2019 as per the Cabinet directive, government departments are still groping in the dark about which assets to be put on the block
Similarly, today’s lump-sum gains to the government may become a cost tomorrow. Without bureaucratic capability and regulatory acumen, the Indian program could become a transfer of taxpayer-funded assets to a handful of business groups. This is a concern because of the rising concentration of economic power in everything from transport to telecom. Airports and seaports are the stranglehold of billionaire Gautam Adani’s group, which also wants to acquire Container Corporation of India Ltd., a state-owned logistics firm.
The wireless carriage business, once teeming with a dozen operators, has effectively turned into a duopoly, led by Mukesh Ambani, India’s richest man. Privatization of a state-owned aluminium maker only causes job-loss anxieties among its workers. Once control over utilities is out of the government’s hands for years, even decades, the broader public will worry about higher user charges slapped by operators of roads, railways, airports, power grids and gas pipelines.
THE REASONS BEHIND ASSET MONETISATION
The major reason behind asset monetisation is to generate resources to bridge fiscal deficit. India has one of the lowest tax-GDP ratios in world (central tax-GDP varying from 9 to 11% of GDP) while many advanced countries have twice or thrice of India. The draconian demonetisation, and flawed GST had not only slowed down economy (growth rate continues to decline), revenue generation capacity of economy is adversely affected.
Further thing has been exacerbated due to catastrophic tax cut for corporates of Rs 1.45 lakh crore in 2019. This loss is not confined to this year but amount is increasing each year. As a result of which resources generated by way of corporate tax was twice that of personal income tax few years back. But now resources generated by way of corporate tax is less than that of personal income tax.
Due to recent pandemic induced disruption, recession revenue generation capacity of Indian economy has been severely strained, while expenditure has spurred by little margin. As a result of which fiscal deficit which was varying from 3% to 4% of GDP has increased to 9.4% in 2020-21 and it is estimated to be 6.3% in 2021-22. The government has borrowed Rs 12.80 lakh crore in 2020-21 and likely to borrow Rs 12.05 lakh crore from the market in 2021-22. The general government debt has increased from 72% in 2019-20 to at 90% of GDP 2020-21 which is too high in case of a developing country.
If and when monetisation of assets happens, they will add to the non-tax revenues of the government which are currently 5.1% of GDP, up from 2.7% in 2014-15. They have virtually doubled after 2014, and are testimony to the Modi sarkar’s prodigy for stealing money from PSUs, with even the RBI reserves not being exempt from such larceny.
It is noteworthy, that in an interview with Wall Street Journal, in early 2016, Prime Minister Narendra Modi had said: “In any developing country, both the public and private sector have a very important role to play. You cannot suddenly get rid of the public sector, nor should you”. But, how, Narendra Modi government is waging an ideological assault on the public sector and blatantly has placed the private sector at the heart of his governance, which portrays a bleak future for the public sector and vulnerable people as a whole.
The bigger question is that why suddenly humungous asset monetisation, disinvestment, and privatisation of the public sector have become the government’s core agenda while no effort is made to tackle the intricate problems of poverty, hunger, unemployment, inequality, oil price hike, inflation, rise in prices of essential commodities, erosion of purchasing power of people, rising banking frauds, saddle of NPAs, massive tax evasion, the decline in corporate tax revenue, and falling demand plaguing nation. No amount of concern is expressed about the sufferings, mental agony of people who were infected by the coronavirus or whose family members have succumbed to the deadly virus.
Actually, this is nothing but the combination of “disaster authoritarianism” and “shock doctrine”. The Canadian author and social activist Naomi Klein, in his book The Shock Doctrine: The Rise of Disaster Capitalism, had used the term “shock doctrine” to describe the atrocious tactic of using the public’s bewilderment following a collective shock – wars, coups, terrorist attacks, market crashes, or natural disasters – to push through radical pro-corporate measures, often called “shock therapy”.
This gallops on the exploitation of national crises -such as disasters or upheavals like pandemics- to establish controversial and questionable policies, while citizens are too distracted (emotionally and physically) to engage and develop an ample response, and resist effectively.
Shock tactics follow a clear pattern: wait for a crisis declare a moment of what is sometimes called “extraordinary politics”, suspend some or all democratic norms – and then push the corporate wishlist through as quickly as possible. Amid crisis, the country’s ruling elites were often able to sell a frightened population on the necessity for attacks on social protections, or massive bailouts to prop up the private sector – because the alternative, they claimed, was the utter economic apocalypse.
Now the Corona pandemic has brought us to peak procrastination, but for autocrats, it is a chance to grab even more power while for rich and corporate honchos, it is a way to accumulate more wealth and acquire national assets at cheaper price. The project of monetisation of assets is a big step of international finance capital dictated neoliberal policy.
WHAT ARE EXPERIENCES IN OTHER COUNTRIES?
The biggest paradoxical situation witnessed in India is that when the era of big government is back in advanced countries, India is going in reverse gear with the era of big government is over. Recently, the UK has taken recourse to re-nationalisation of the railway with Boris Johnson accusing the privatisation of British Rail in 1993 as botched one that led to “fragmentation, confusion and over-complication”.
Democrats in Washington are working to enact the largest, spending package in America’s history—with a price tag of $4.7 trillion. On 8th August, a $1.2 trillion so-called “infrastructure” bill package that includes funding for roads, bridges, electric vehicle, broad brand, cyber security, water infrastructure, and grid resilience, among other priorities has been passed by Senate. On August 10, 2021, a $3.5 trillion “infrastructure” reconciliation package –that would expand Medicare, tax credits, and climate initiatives has been approved by Senate.
Andy Mukherjee has written about monetisation experience of other countries in Bloomberg Opinion which was reproduced in Business Standard on August 25, 2021. Singapore had to nationalize its suburban trains and signalling systems because the main private operator had underinvested in maintenance, leading to frequent breakdowns and stranded, angry passengers.
In New South Wales, where electricity prices doubled in five years after poles and wires were privatized, the government had to step in with an Energy Affordability Package to lower the burden on consumers. The Indian taxpayer, already struggling under extortionate levies on energy, simply can’t afford such largesse.
The asset-recycling craze had got under way in Australia with the 2013 first leasing of Port Kembla and Port Botany near Sydney. But recently, Australian Competition and Consumer Commission Chairman Rod Sims’s warned that if privatisation does not lead to efficiency, then better to avoid asset-recycling or privatisation. But in India, there is no question of efficiency but only plunder of national assets.
It is argued that monetisation is different from ‘privatisation’, as it signifies ‘structured partnerships’ with the private sector under certain contractual frameworks. In privatisation, government totally sell assets for lump sum amount and it neither earns revenue in future nor has any stake in that sold assets/industry. But in some stage, government may fully sell those leased assets to lease holders by taking some more prices just the way we convert our land (purchased on lease) to freehold by paying extra price.
After the ‘Make-in India’ fiasco, demonetisation disaster, GST imbroglio, ‘jumla’ of ‘Aatmanirbhar Bharat’, monetisation of the asset is another flawed initiative. es. In brief, asset monetisation may lead to the intensification of crony capitalism, create private monopolies, and trigger outright plunder of people’s wealth by cronies and will lead to disempowerment and impoverishment of masses.
According to World Bank (July 2018), social development focuses on the need to “put people first” in development processes. It is about improving the well-being of every individual in society so that they can reach their full potential. The success of a society is linked to the well-being of each citizen. Hence, social development means investing in people which requires the removal of barriers so that all citizens can make a journey toward their dreams with confidence and dignity. But the present government is doing just the opposite and its policies are strewn with pitfalls.
The author is an Odisha-based eminent columnist/economist and social thinker. He can be reached through e-mail at [email protected]
DISCLAIMER: The views expressed in the article are solely those of the author and do not in any way represent the views of Sambad English.