National Monetisation Pipeline shows promise — and limits

Synopsis: Article focuses on two issues – How much should the government expect to raise from the Asset Monetisation plan? And, whether the plan likely to increase the efficiency of the economy?

Background

– Read here: National Monetisation Pipeline – Explained, pointwise

How much should the government expect to raise from the Asset Monetisation plan?

The amount of money raised shall depend on the bidding amount.

And the biggest uncertainty in the calculation of bidding amount is regarding the cash flow on these public assets.

Estimates of Rate of return on public capital in the US have been estimated to be upwards of 15%.

However, in India with its various uncertainties regarding pricing, bill collection, asset quality, regulatory framework as well as policy reversals the returns are likely to be lower than the US estimates.

Even in the most optimistic scenario, revenue generated by the plan is unlikely to exceed 5% of the government’s overall infrastructure investment target of Rs 111 trillion.

Hence, its revenue potential is limited.

Will the plan enhance the efficiency of the economy?

The NITI Aayog believes that the private sector is better at managing and operating the identified public assets than the public sector. There is certainly scope for efficiency gains. However, there are significant efficiency barriers too.

Usage fees: One set of efficiency issues involve usage fees. Can the lessee freely choose the price of the services from the asset? If so, could we end up seeing significant increases in prices?

Cartelisation and concentration of ownership: A second factor related to efficiency is the effect of the plan on competition. Could the plan induce the cartelisation of key segments of the infrastructure landscape?

The identified assets belong to core sectors of the economy including transport, energy and communication. Sectors like telecoms and ports have already seen rising concentration of ownership in recent years. An acceleration and extension of this trend to other segments of the infrastructure landscape would be seriously worrying.

Financing of lease bids: A third set of efficiency-related issues surrounds the financing of the lease bids. If bidders finance their bids using domestic savings, there is a clear opportunity cost of the plan, since these savings would otherwise have been invested in alternative projects.

The way around this is to welcome foreign investors to bid for the assets. But this will require serious political will since entrenching foreign influence on Indian public assets will generate controversy. On this aspect too, the announced plan is low on details.

What is the way forward?

The NITI Aayog should come up with a white paper that addresses some of these efficiency-related issues. Without that, the monetisation plan, while intriguing, is incomplete.

Source: This post is based on the article “National Monetisation Pipeline shows promise — and limits” published in The Indian Express on 18^th Sep 2021.