THE government of India proposes to recycle publicly owned brownfield capital assets mostly underutilised or with low returns into revenue generating assets controlled by private corporates with a view to fund National Infrastructure Plan (NIP) involving Rs 111 lakh crores stretched over a period of five years. In this connection National Asset Monetisation Pipeline (NAMP) has been announced which sets a target of mobilising roughly Rs 6 lakh crores which however amounts to 14 per cent of Rs 43 lakh crores suggested to be the proposed outlay of central government in the NIP. The government however claims that NAMP is meant to mobilise funds for critical infrastructure but as the design of the plan and the targets indicate, it is primarily a fiscal exercise with a desperation to handover public assets built over the years to corporates.

About 20 plus asset classes including roads, railways, power generation, natural gas pipelines, telecom, product pipeline, mines, aviation, ports and stadia that are currently under public control will be handed over to private corporates for a finite period as license or lease. Within a period of five years 2022-27, 26700 kilometres of roads, 400 railway stations, 90 passenger trains, 1440 kilometres of railway track, 8154 kilometres of gas pipeline, 2.86 lakh kilometres of Bharatnet Fibre and 14917 BSNL and MTNL towers will be handed over to private operators for say 25-30 years and the valuation of assets as suggested would be calculated through various methods and the operator will be chosen by bidding.

The top five categories of core assets as identified by the central government are roads, railways, power, gas pipelines and telecom. The government however claims that this is not outright sale but transferring of control to private players for a defined time. The process of monetisation involves a complicated calculation which is something as follows. The present value of future stream of income that would be generated from an asset over a period of time is arrived at discounting at a rate linked with the interest rate. The private entity will retain a portion of that amount as assumed profit rate and a return out of investment made during the lease period and the rest would be transferred to the government as upfront rental income.

VALUATION ISSUES

The assets collated in various classes and the valuation involves a cumbersome process. Firstly, many of these assets such as gas pipelines or railways assume features of natural monopolies. In these cases, we cannot have multiple arrangements handled by multiple players, meaning many railway tracks or many gas pipelines with the same purpose but run by different owners. When production or services assume a huge scale allowing reduction in average unit costs or involves huge investments for a new entrant to build a similar production structure or network, single operator is better for the society to avoid waste of resources. But it is difficult to arrive at a price for such assets and no one knows whether bidding will ensure a revenue that would be justified on grounds of future returns that the government could have generated over the defined period.

Secondly, although it is claimed that the control will be leased out through competitive bidding but there are possibilities of low transparency and concentration of control in the hands of few corporate – the glaring evidence being that six airports have been awarded to the same group for fifty years lease. Thirdly, the bidders will calculate the amount of investment they would be making on these assets, which could be huge in some cases, spread over the lease period and the return they would be expecting to derive out of that. In netting this out the amount that the government could have generated through these assets if they were kept in public ownership is unlikely to be taken into account. In fact, the replacement costs of creating those networks and infrastructure at current value are allowed to be avoided by simply saying that these are not change in ownership and the government continues to hold these assets as owners. Most importantly the handing over of assets to private corporates will not lead to any sort of competitive pricing as it is often portrayed instead it is public monopoly turned into private monopoly where welfare considerations will be subservient to aims of profit maximisation.

IMPACT ON PEOPLE

When the private players control roads, railways, power generation, gas pipelines or telecom they would naturally be inclined to make profits out of these assets and this may lead to hike in user charges for consumers. This has happened in many countries when public utilities were privatised. Without a proper regulatory mechanism put in place, user charges are likely to increase. On the other hand, there will be segmentation in market for services based on prices paid and extension of access to services and higher quality of services would only be provided against higher costs. On the other hand, corporates would be inclined to reduce operation costs particularly that of workers employed in these public services. Public sector workers were entitled to wages and payments that are otherwise supposed to set standards for the labour market. Those norms and standards are likely to be dismantled. Privatising services rather may lead to retrenchment, contractualisation and fall in wages and non-wage payments to workers. The other important issue is of inter-generational equity. Monetising future returns as upfront current rental income is something like depriving future generations from their incomes for the sake of meeting current expenditure, and that to by handing over public assets which were built over generations.

PURPOSE OF ASSET

MONETISATION

Despite the fact that NAMP proposes control of assets by private operators for a finite time instead of outright sale, effectively such a transfer is nothing short of a sale of public assets. For a long period, say 30, 40 years, the asset will be used by private players and as the lease period nears to end, the incentive to invest by private operators gradually declines. The dominant motive would be to squeeze out what ever possible without having any concern about keeping the asset adequately functional. This had been the case in Singapore Suburban railways. When the railways were handed over to the government at the end of the lease period, to keep the service running, the system was once again nationalised with fresh investments by the government. Therefore, there is high possibility of stripping off public assets and again public money will be required once the lease ends.

Although the government claims this process to be recycling capital from brownfield low utilisation assets to build new infrastructure proposed in NIP, but asset monetisation actually provides a very small amount in this regard. Actually this seems to be a move to manage fiscal deficit which comes to around 9.3 per cent of GDP in 2020-21 and general government debt around 9 per cent of GDP. Regarding direct tax, the government gave concession to corporates by announcing corporate tax cut prior to the budget causing annual revenue loss of Rs 1.45 lakh crore. The easy recourse was to mobilise revenue through increasing petroleum prices. Their demand is inelastic meaning people cannot easily avoid their use and this increase in fuel prices has cascading effects on prices of other goods and services. Relying more on indirect taxes hence becomes inflationary and politically unsustainable and therefore garnering non-tax revenue through monetising public assets and disinvestment became the preferred choice.

The fact however remains that essentially asset monetisation is a borrowing against publicly owned wealth. It is also important to note that there are possibilities that in a gloomy economic scenario both due to the pandemic and the slowdown prior to that, private players may not be interested in hiring these assets. In the recent bid for 150 trains in the Indian railways, only two bidders participated in two of the nine clusters, and the only serious bidder was IRCTC which is Indian Railway’s own company.

Neoliberal policies are primarily aimed at replacing any sort of collective judgment or control by private ownership. And the role of the State has been to dismantle existing institutions to facilitate this process of corporate takeover. Converting publicly owned properties and utilities to private assets through commoditising resources and services is nothing but another episode of primary accumulation of capital.