Done right, NMP could be the way out of the woods for the economy

The Big Lens

There comes a time when selling off the family silver may be more prudent than holding on to it for its antique value. As with households, so with nations. But just as they say that every generation has to learn anew that the fire is hot, every finance minister has to learn that creating national assets is an arduous task. This is especially important to keep in mind as the Narendra Modi government embarks on a plan to monetise assets.

The Union government plans to monetise public sector assets and collect about Rs 6 lakh crore over the next four years to partly fund its ambitious infrastructure projects. The plan, if implemented with military precision, should rake in about Rs 88,000 crore in the current financial year. The National Monetisation Pipeline (NMP), a special purpose vehicle, will bring in about 14% of the government’s share of Rs 43.29 lakh crore needed for the National Infrastructure Pipeline (NIP).

The NMP will cover 20 categories of assets under 12 ministries and departments, including roadways, railways and power, the three top sectors that alone hold monetisable assets valued at about Rs 1.5 lakh crore. Unutilised or underutilised brownfield assets which proudly display a ‘blue chip’ tag, earned over the last four or five decades, will also be put on the monetisation block for auction: 25 airports, 27,000 km of roads, 6 GW of power projects, 160 coal mines, about 8,000 km of natural gas pipeline, the list of gleaming assets to cash in on is long.

While the government avowedly claims that it is not selling away these assets, its assurance is likely to be viewed with suspicion and taken with more than a pinch of salt. Those who have dealt with governments in the past know that monetisation, when undertaken over a long number of years, is effectively privatisation. Even when the government does not intend it to be so, things don’t always go as planned or advertised.

But the government’s effort to mop up as much revenue as possible to fuel the economy, create jobs and make the economy ‘shine’ is understandable. The demonetisation exercise of 2016, the rolling out of GST in 2017 and other factors had ensured that economic growth had already slowed down to 4.5% by 2019, and it seemed on the path to slowing down further as consumer demand continued to fall and industry remained unwilling to invest. Then, the sudden, severe and extended lockdowns since the pandemic began in 2020 intensified the economic pain. These factors have together broken the backs of the salaried class, the daily wage earner and of much of the business community.

The Union government did make efforts to save the economy from nose-diving due to the pandemic, but it nevertheless fell into negative territory. The Atmanirbhar Bharat programme, ‘vocal for local’ mantra and the efforts to help kickstart manufacturing have not yet shown encouraging results due to a number of factors. While governments the world over and in New Delhi can print notes, sell assets and resort to deficit financing, the common man cannot perform any of these tricks to remain afloat.

In such circumstances, the government could not help but take steps like asset monetisation to mop up revenue and increase government spending, which is currently the only engine driving the economy, by undertaking new infrastructure projects. GST collection, which seems to have recovered, is not always an indicator of economic recovery, unless other parameters fit in. Thus, one cannot find fault with the government’s intention to augment resources through monetisation or asset sales. The problem, as always, will lie in the finer details of the NMP plan, its implementation and the guarantee of results.

While no one can predict the outcome of the NMP plan, one can make reasonable assumptions over how it will turn out from the roadmap and transparency of the plan. The finance ministry or Niti Aayog could publish a white paper on the roadmap of the NMP, its process of valuation of assets and, above all, the procedures it will adopt to avoid creation of private monopolies and/or crony capitalists.

Reports that some global private equity biggies like Blackstone, Blackrock, and Macquarie could participate in the asset monetisation process is good news. But our own “swadeshi” private sector should be given preference. The private sector currently needs help, encouragement, easy compliance, lesser tax burden and better credit facilities. There is an urgent need for the government to provide a level playing field and clear administrative cobwebs.

Meanwhile, it would not be out place to suggest here that the government should seriously consider abandoning the Air India sale process, which has not made any headway, and bring it under the NMP plan. Since the assets under the NMP plan are ‘not being sold’ and there will be an undertaking to ‘hand over the assets back’ to the government after a certain period, the government will remain the proud owner of the national carrier and will yet have bailed it out of its current financial mess.

Another apprehension that the government needs to allay is the possibility of the asset sale revenue being used to bail out public sector banks and to help clean up banks’ balance sheets, loan repayments and debt servicing. It will be inappropriate for the government to utilise the revenues from NMP to fund non-productive aims or projects that do not create new assets. The government should resist the strong temptations that will arise when NMP revenues are in hand, especially as elections approach.

(Seshadri Chari reads between the lines on big national and international developments from his vantage point in the BJP National Executive and the RSS)