MONETISATION: A NEW MANTRA FOR PSU REFORM
The NDA is steadily accelerating reform of the public sector, first initiated in the 1980s. EPISODE #38
Dear Reader,
A very Happy Monday to you and prayers for the people of Afghanistan.
Last week the union government shared the blueprint for monetising public assets. It was proposed in this year’s Union Budget presented by finance minister Nirmala Sitharaman. Coming on the heels of walking back the mistake of retrospective taxation, the National Democratic Alliance (NDA) has ticked another box in its already impressive reforms report card. Funnily enough armchair analysts who have cried themselves hoarse for the last two decades about the need for public sector reform are mostly silent now that a government has chosen to deliver.
This week I review the asset monetisation plan and argue how it is moving the ball on much needed reform of the public sector. It will however depend upon on how the NDA is able to crank the dysfunctional government machinery to roll out its ambitious plan.
The cover picture, taken recently by a smartphone sans filters, is a poignant sunset in Uttarakhand. Undoubtedly a spectacular treat by mother nature. Enjoy.
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ANOTHER MAKEOVER
Last week the union government announced a plan to monetise public assets. If implemented as envisaged, then the government will realise a staggering Rs6 trillion in the next four years. But this is only the headline.
The larger subtext of the latest policy initiative—the intent was announced in the Union Budget for 2021-22—is that the public sector reform turned a new corner. The attempt to pivot from the ideology of the “commanding heights” of the public sector was initiated in the 1980s. Since then it has undergone several makeovers—each iterative exercise, always by a different political coalition at the helm, explored new contours.
However going by the shrill political challenge from some quarters one may mistakenly believe that this is a “bold new reform” initiated by the Bharatiya Janata Party (BJP)-led National Democratic Alliance.
No doubt it is a bold initiative as it seeks to accelerate long overdue public sector reform. The point is that it is just another iteration to unlock the productive capacity of the public sector.
Indeed if there is one issue on which there is national consensus, it is public sector reform. The intent all along has been to ensure that the public sector pose less of a drag on the limited fiscal resources and more importantly tries to repurpose them to survive and thrive in a market economy. It is just that politicians are prone to speak in a forked tongue—depending on whether they are seated on the benches reserved for the Treasury or the Opposition.
THE MONETISATION PLAN
Briefly the plan envisages the monetisation of a raft of built-up assets, including roads, ports and airports. Something very similar to what we have seen in the instance of the airports in Delhi, Mumbai, Bangalore. Essentially a private entity owns and operates the asset for a period of 30 years for a fee.
The logic is simple. India desperately needs infrastructure as it seeks to accelerate economic growth. But this requires underwriting a huge sum of investment. Strapped for resources what the union government is looking to do is to farm out these built-up infrastructure projects to private operators. Not only will they earn a fee—to be paid mostly in advance as a lump sum—the government will also save on administrative expenses (mostly wages and salaries) it would otherwise have had to expend to deliver the (mostly substandard) infrastructure service.
While there are several models the most popular one seems to be to lease out an existing asset to a private operator. And since most of these assets are developed on public land a key clause guarantees that there is no transfer of land.
The logic (highlighted below) is very clearly spelt out in the introductory note inked by Amitabh Kant, the CEO of Niti Aayog, in the handbook detailing the asset monetisation strategy:
“Asset recycling and monetisation is the key to value creation in Infrastructure by serving two critical objectives, unlocking value from public investment in Infrastructure and tapping private sector efficiencies in operations and management of infrastructure. Under the Union Budget 2021-22, Monetisation of Assets has been identified as one of the three pillars for enhanced and sustainable infrastructure financing in the country.”
The operative word is tapping “private sector efficiencies”—also a tacit thumbs down on the ability of the public sector to deliver these services. I must admit though that this is at times a stretch, especially in some of my savouring of services provided by the private sector. But then most of the public sector, barring entities like the world class Indian Space and Research Organisation or Isro, especially in the consumer facing services leave a lot to be desired. So in a relative sense the private sector is the better benchmark; but definitely not the gold standard.
This is also why I am arguing that asset monetisation is nothing but one more step in unwinding India’s long standing ideological commitment to position the public sector as “commanding heights” of the economy. In fact, it is to the credit of the NDA that they have shed the “stealth” approach and seized the change.
Normally public memory is short, so I wouldn’t be surprised if most forgot how this year’s Union Budget made the most dreaded word—privatisation—central to its blueprint for public sector reform. And as Kant pointed out, even asset monetisation was part of the new lexicon set out by finance minister Nirmala Sitharaman.
In fact, I had devoted an entire Capital Calculus capturing this fundamental shift. Quoting a key part of my argument from the column:
“It (the Union Budget) has formally buried the Nehruvian legacy of the commanding heights of the public sector. More importantly it has also bid goodbye to the long held practice of “reforms by stealth”.
“This is because Finance Minister Nirmala Sitharaman’s speech—which is part of the Union Budget—included a very important annexure: the new policy on disinvestment. The actual moniker for the new divestment policy should be privatisation. The passage of the Union Budget by both houses means that the new policy has been sanctioned by Parliament. In other words this structural change is as good as written in stone.”
In fact, I had argued at length that public sector reform has been an instance of continuity with change. Those interested in giving it a re-read please click here
It is clear that the NDA has put together an ambitious blueprint to reinvent the public sector. But as in everything the proof of the pudding lies in the eating. Not only will the NDA have to contend with the naysayers, including the armchair analysts and out of work politicians, it will also have to brace for push back from within. But that is a story for another day.
Recommended Viewing
The overnight takeover of Afghanistan by the Taliban has baffled all of us. But slowly and steadily we are beginning to get a clearer picture of what went down in the troubled country. Over the weekend a friend of mine, Shreekant, shared a clip of Lara Logan in a very revealing conversation with the controversial Fox New host Tucker Carlson. (Ignore the platform and listen to the content.)
Logan, a journalist who has covered the Afghan war since 2001, lays it out very bluntly: The United States messed up big time, especially in buying into the false narrative offered by Pakistan.
The question is why did the world’s most powerful country accept such a humiliating handover to the Taliban? More importantly why can’t the US establishment see what Logan—and most of us—is arguing about the blatant duplicity of the terror factory of the world: Pakistan. It makes the superpower look stupid!
To top it all, Pakistan is using the Taliban and the IS to play the good cop, bad cop routine with the Americans. And unbelievably the Americans are being played. It is really tough to believe that the Americans do not realise that this is a dangerous game which legitimises terrorists and their sponsor nations. The events unleashed by the abrupt American withdrawal are threatening to upend the world. Fingers crossed.
I couldn’t locate the specific clip Shreekant shared on YouTube, but found another in which Logan makes the very same points.
Till we meet again next week. Stay safe.
Excellent
Wonderful