National Asset Monetisation Pipeline: are the opposing politicians right?

By Ranu , Economist 

Economic policies seldom invoke political consensus. The latest uproar over the National Asset Monetisation Pipeline (NMP) is one such example.

First of all, let’s try to understand (very briefly, I promise) what NMP is. It is a central government scheme, first announced in the Union Budget for FY21/22 (April 2021 to March 2022), to ‘monetise’ its assets, with voluntary participation from the states. This effectively involves leasing or renting out government’s assets to private companies over a period of 25-30 years. The private companies will be responsible for the operations and management of the assets, and will not be ‘owners’ of these assets. The right to sell and lease-out the assets will lie with the central government or the states. Think of a piece of land lying idle right now, which can be leased out to private companies that can use it to build factories or offices, generating employment in the country.

To understand as to how these assets worth lakhs of crores are lying in disuse and their plight one has to just go through the few articles and picture that have been published . https://timesofindia.indiatimes.com/city/bhopal/ghost-town-half-on-bhel-quarters-unoccupied/articleshow/70440123.cms.

BHEL Bhopal Once a Flourishing Township is in Ruins Now. 

Thousands of such houses/dwellings and vast open grounds where once children played have now turned into rubble because the previous Govts did not show courage to put them into good use. 

This is sheer callousness and utter disregard to the tax payers' money. Now let’s look at the criticism levelled against this scheme by some of the politicians and understand whether the criticism is valid or not.

1. ‘Selling-off’ crown jewels built over the last 70 years: Most of these ‘crown jewels’ have become liabilities for the Indian state. A quick estimate of the asset-turnover ratio (assets/net income ratio, which is a measure of efficiency of companies) and net profit margin (profit/net income, which is a measure of profitability) has declined across the board for a total of more than 200 central public sector enterprises (CPSEs). Close to one third of these CPSEs are loss-making. And these come under the ambit of the central government, which is known for better management and operations! Imagine the condition of the state public sector enterprises (SPSEs) then.

There are other idle assets like land, residential complexes, warehouses etc that are ill-managed and are generating little to no revenue. In fact, much of the assets/infrastructure in place is of poor quality due to ill-management after the projects get completed. It is no wonder then that India lags in the infrastructure quality across the emerging markets, with a huge infrastructure gap. For example, according to the latest Logistics Performance Index (2018, World Bank), India ranks 52^nd amongst some 160 countries and has more or less maintained its position over the years (in terms of scores) for infrastructure quality (Figure 1). Most of the other emerging economies have improved their score on the quality but barring a blip in 2016, India has maintained its status-quo. One of the most significant barriers to new investment (in manufacturing factories) has been poor infrastructure quality in India.

Figure 1

2. Creation of monopolies: This point seems oddly out of place. The whole point is to end the state-monopoly over assets that have been idle and/or unproductive. We have seen first-hand the loss of output/productivity and tremendous wastage that happens when the government is in-charge of businesses and private sector isn’t allowed to thrive. We lived under this socialist economic system till 1991; it is time to end the last remaining ‘state-monopolies’.

3.Corporate favouritism: The politicians opposed to the NMP have been attacking the government over its alleged favouritism of the businessmen. Do they want the private firms to do charity in India, so that they go bankrupt? The private businesses will manage and do business using the leased assets, adding significantly to India’s GDP and generating the much needed jobs.

4.Robbing livelihoods: This is just being ignorant on the economics part of the discussion. Investment creates jobs and India needs jobs to support its expanding working age (15 years and above) population. If it is unable to do so, it risks social instability as the youth sits idle without any employment. Already, the unemployment rate amongst the youth is in double digits (15%).

Now let’s talk about the real and constructive arguments that should be raised with regards to the NMP.

1. An up to date audit of the nation’s assets are required both at the state and national levels. Right now according to an obscure document called the ‘Asset Register’, the central government’s total physical assets amount to just Rupees 3.7 lakh crores. But this is in contradiction to the total amount spent till date by the government on ‘economic services’ like infrastructure – Rupees 18.5 lakh crores. Moreover, this figure is also at odds with the figure quoted by the central government, which is Rupees 6 lakh crores worth of assets under NMP. Thus, a proper valuation and listing of the government’s assets has not happened. The question then is whether the NMP scheme will address this? Otherwise the whole exercise will not be transparent and may result in corrupt practices.
2. While the government has earmarked shares of different asset classes in NMP like 20% of the total roads will be monetised, it hasn’t prioritised the monetisation. Indian economy is recovering from the devastating impact of the pandemic and to begin with the economy was already on a shaky footing even before the pandemic (please see the earlier note:Growth and its dynamics: short summary for Indiahttps://www.bharatamrising.com/growth-and-its-dynamics-short-summary-for-india ). In such a scenario, there should be a prioritisation of assets being offered for monetisation in the order of ones that have the greatest potential of generating low skilled jobs. Roads, mining, warehousing comes to mind here.

These are only some of the questions the Indian politicians in the opposition should be asking. The ones that they are asking right now are not helpful for making India stronger. They are only weakening India and her people. 

Disclaimer ;  Views expressed above are the author's own