Prof. M. K. Bhat
The much hue and cry about monetisation in the post union Budget 2021-22 era has raised many questions and provided little answers about the ambiguity of monetisation of assets by Government. The popular narration built by opposition parties is that it is complete sell out of public sector assets, contrary to this the government holds that the ownership rights will stay with the public authority. There are some who doubt the valuation of the assets and raise questions about the Public private partnership mode. There are still others who raise doubts about the timing of monetisation as they hold that the economic health of the economy is not in a good state at present so under valuation may take place. There are others who believe that when the target of disinvestment was not achieved almost every year, how can the government attain the target of 6 lakh crore over a period of 4 years for the infrastructure of the country. Certain economists hold that debt monetisation could have been a better option than asset monetisation. There are people who are aware about what monetisation is and have used this option to raise revenues when they were in power but speak other way, to be politically correct. It has become a habit with some (Andholan Jivi’s) to spread lies to denounce the present government and in this melee, they confuse the common man. There is no doubt that raising funds worth Rs 6 lakh crore amounting to 3% of GDP by monetising assets is a big challenge for the Government. All these things make it imperative to analyse monetisation in detail.
National Monetisation Pipeline (NMP) envisages a limited period licence or lease of an asset owned by Government or public authority to a private sector entity for an upfront or periodic consideration. This makes it different from disinvestment or privatisation where the asset is sold to the private party along with the ownership right. In monetisation, the Government parts with an asset for a specified period of time and in exchange gets lumpsum payment and the asset is handed over back to the government after the expiry of the designated time period. There is no sale of the Government asset rather the asset is given on lease. The Government needs monetisation to generate funds for the infrastructure development of the country. It can monetise roads, railway stations, freight corridors, airports, ports, telecom and power transmission, national highway and stadiums etc
Monetisation leads to efficiency in case of underutilised assets e.g. if few matches are held in a stadium during a year, thus it remains underutilised due to lack of putting it to alternative uses for lack of proper marketing/ funds. If a private firm feels that it can utilise the stadium better by organising more games in it. It may pay the price equal to the present cashflow at current level of utilisation to the Government. The private firm may invest in it to reap the higher cash flow. The escalation in the cash flow due to the investment by the private party minus the cash flow at current level of utilisation by Government is the level of efficiency created by the proper utilisation of the asset due to the investment by the private firm. The proper utilisation of the asset will have its impact on the economic growth of the country. The underutilisation of resources lowers the economic growth of a country and the good utilisation adds to the coffers of the economy.
In case of over utilised assets where a little scope of improvement exists, the investing firm can lower the operational costs only and no additional productivity takes place. The private firm pays as per the present value of the cash flow after deducting its own returns. The returns the private player gets will depend upon its cost of capital, time duration up to which the asset is going to be utilised by it, nature of the asset etc. The Government gets revenues which can be used for infrastructure development of the country.
It may however be worthwhile to mention here that there are many difficulties in evaluating an asset for long time periods, so even the right intensions of the evaluator may not help in the exact valuation because of the change in the economy, efficiency of the evaluator, alternatives likely to develop in the respective area etc. If the Government fails to assess the asset properly the investor may reap windfall gains. Another apprehension can be regarding bidding; the highest bidder will get the asset and once he gets the asset he may monopolise and raise prices without caring for the public. He may pay more to the Government and fleece the consumer by charging more.
The nature of the asset too will play its part in the monetisation of an asset. If the asset has a short life span it may amount to the sale of that asset e.g., if the road way fleet is monetised the private party will use it to the extent that it may be worthless to give the fleet back to the Government. The monetisation through PPP route has earlier not shown good results. It increased NPA of banks as private firms failed to pay loans back to the banks which were given on political considerations and cronies got encouraged.
The Government intends to do monetisation by creating investment infrastructure trusts. The monetised assets will be transferred to these trusts. They will work like mutual funds in which investors can subscribe to the units that give dividends. The sponsor of the trust is required to hold a minimum prescribed proportion of the total units issued. It will help to overcome the problem of wrong evaluation or increase in the price for the consumer and there will be no issue of transfer of asset to the private party.
Those terming monetisation of assets as “sell out” must remember that the sale of assets to private sector has started three decades back with the liberalisation of the economy. It cannot be denied that there is a need for competent authority to monitor the valuation, its impact on price to the consumer and other such things.
India requires huge amount of funds to finance the infrastructure of the country. The funds have all the more become scarce due to the pandemic. The large population suffering due to pandemics needs food, health and future growth. The better utilisation of assets leading to efficiency is a good thing provided it will not culminate in crony capitalism.
It is worthwhile to mention that some people are so touchy about public sector that they fail to think about the better use of such assets. These people generally bear a tendency to doubt the credibility of private sector. The country needs to come out of this mental makeup if it wants to grow at a higher speed. How long a tax payer’s hard-earned money will go into the malfunctioning assets is a big question for everyone to ponder upon?
(The author is Prof. (M.A.I.T) Guru Gobind Singh Indraprastha University, Delhi)
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