Pre-cum-Mains GS Foundation Program for UPSC 2026 | Starting from 14th Nov. 2024 Click Here for more information
Contents
Synopsis: Pertinent questions, in the light of the recently announced NMP, have been raised in the article. Questions are related to the impact of NMP on ordinary citizens, whether NMP was the only option before the govt, and whether public sector enterprises are actually inefficient.
Background
Read here: National Monetisation Pipeline (NMP) project – Explained
How will NMP impact the citizens of India?
Double taxation: With private companies getting the sole responsibility of running all these assets, from highways and railways to all the major utilities such as power, telecom and gas, the citizens of India would be double-taxed. First, they paid taxes to create the assets, and would now pay higher user charges. Private sector is geared towards profit maximisation, not social benefit. Therefore, as the Government prepares to transfer “performing assets” to the private companies, it has the responsibility to ensure that user are not charged very high prices. This critical dimension has not clearly been spelt out even in the NITI report.
Was asset monetisation the only option?
Since the proposed asset monetisation has resulted from the resource shortage faced by the Government, a pertinent question is whether there were other avenues that it could have been tapped for plugging the resource gap.
Increase tax revenue: One possibility was to increase the tax revenue. At 17.4% in 2019-20, India’s tax to GDP ratio was relatively low, as compared to most advanced nations. Improvements in tax compliance and plugging loopholes have long been emphasized as the surest way to improve tax revenue, but little has been done, on this front.
| Example: Since 2005-06, the Government has been providing data on the profits declared and taxes paid by companies that file their returns electronically. This data reveals that in 2005-06, 40% of these companies had declared that they were not earning any profits, and this figure had increased to over 51% in 2018-19. Further, the share of the reporting companies earning profits of ₹1 crore or less was 55% in 2005-06; this figure had declined to 43% in 2018-19. |
These numbers show that India’s large companies have been exploiting the loopholes for reporting lower profits and to escape the tax net.
Are public enterprises inefficient?
According to NITI Aayog, the “strategic objective of the Asset Monetisation programme is to unlock the value of investments in public sector assets by tapping private sector capital and efficiencies”.
The NITI Aayog objective assumes that public sector enterprises are inefficient, which is contrary to the reality. In 2018-19, while 28% of these enterprises were loss-making, the corresponding figure for large companies was 51%.
So is it realistic to assume that the asset monetisation programme would deliver efficiencies?
Source: This post is based on the article “The long and the short of the NMP” published in The Hindu on 7th Sep 2021.
