Far too ambitious?
NMP is indeed a bold reform initiative but its effectiveness will depend on how the structural impediments are removed and unemployment challenge is averted
The Union Budget for 2021-22 clearly brought out that the economic policy of the government is geared towards growth which would lead to the overall prosperity of the people. Privatization policy was also clearly mentioned in the budget. In addition, the budget spoke of the need to create a national monetization pipeline of brown field projects to finance fresh investment in physical as well as social infrastructure. NITI Aayog was tasked to prepare the policy framework for this announcement and, recently, the Government of India announced its policy along with a detailed guidebook covering all aspects of the same. The government declared that it has prepared a national monetization pipeline that would unleash a latent potential of six lakh crore or USD 81 billion by 2025. The target for the current year is Rs 88,000 crore. It is indeed a very ambitious programme and also a very bold reform initiative.
The policy says that there will be no sale of assets and only brownfield assets would be leased out for a certain period of time to private sector investors or an investment trust that will operate and maintain the assets as well as make investments and, at the end of the lease period, hand over the assets back to the government. The assets identified for this purpose are roads valuing 1,60,200 crores; railways 1,52,496 crores; power transmission 45,200 crores; power generation 39,832 crores; gas pipeline 24,462 crores and mining 28,747 crores. Additionally, there are some other sectors also like telecom, sports stadiums etc.
The strategic objective of the national monetization pipeline, according to NITI Aayog, is to unlock the value of investments in public sector assets by tapping private sector capital and efficiencies which can thereafter be leveraged for the augmentation of greenfield infrastructure creation. In essence, this means that a lot of public sector assets are lying underutilized and they are not being managed and operated efficiently because of the inherent structural impediments of the public sector, and which can be transformed by the private sector to generate resources that can be utilized for the development of new infrastructure. There is no denying the fact that to achieve a high rate of growth, India needs substantial investment in infrastructure which raises the question of the availability of resources. For quite some time, economists and administrators have been grappling with this problem of financing infrastructure. The national monetization pipeline is an innovative solution in this direction and, by all means, can be called a significant structural reform in creating value in infrastructure.
However, the crucial thing is the implementation of this policy. Historically, we have seen that the ambitious targets of disinvestment have not been met year after year due to various procedural bottlenecks. In light of this, it is difficult to see how such a massive scale monetization of public assets can be executed in the given time frame. Personally, I feel that it would be difficult to achieve the 88 thousand crores target for the current year and six lakh crores till 2025. The matter of Air India privatization and that of BPCL pending for years exemplify how such matters take a long time to materialize.
The experience of public-private partnership (PPP) would be vital in implementing the NMP. Various models like upfront lump-sum payment or annuity payment were devised to implement PPP and they are as many success stories as failures. I remember one of the first PPP projects in UP was the bridge on the Noida Delhi highway. The private concessionaire was expected to collect toll for a certain number of years but there was a massive agitation by the farmers and residents of the area after some years and, finally, the toll barrier had to be shut down. There were views on both sides. Some claimed that the PPP agreement had been drafted to give extra benefit to the concessionaire while some felt that the concessionaire was entitled as per the agreement to collect toll for the stipulated number of years. In any case, the whole episode showed the kind of problems that a PPP agreement can lead to. Even in NMP, this crucial issue of valuation of the assets, amount of lump-sum payment and other terms and conditions would determine the success of the policy. The private sector has often argued that the PPP documents are prepared in a manner that private developers do not get a reasonable rate of return on their investment, making it unviable for them. There is no doubt that the civil servants who draft the agreements along with consultants are inclined to err on the side of caution. They deliberately want to put such conditions which would shield them against any inquiry in the future. Naturally, this leads to putting conditions that impact the viability of the project. NMP is a new policy and the civil servants do not have prior experience and, despite the guidelines formulated by NITI Aayog, there is a likelihood that such terms and conditions may get framed that adversely impact the rate of return to the private investors, implying that they would not evince interest in bidding for the assets. Of course, in the case of PPP, things improved over time as the civil servants got more experienced and repeated guidelines were issued by the government. Similar learning experience is possible in the case of NMP but this will take time, making it difficult to achieve the NMP targets in the prescribed time frame.
The fear of subsequent allegations of corruption is not entirely unfounded. You can look around and see the number of cases of privatization or disinvestment where inquiries are going on and there have even been court directives to investigate and lodge criminal complaints. It is, thus, important that the Government of India evolves the system to protect the civil servants from any undue harm if they faithfully, and with bona fide intentions, carry out the NMP exercise.
Apart from above, the private sector would only come forward if it gets a higher rate of return than it would get through an alternative opportunity of investment. Not all assets listed in NMP are likely to give this kind of a return. This could lead to a situation of cherry-picking where the private sector bids for assets with the greatest potential of returns and avoids the others. The implication being that not all assets listed in the NMP will get a private bidder. The more lucrative assets will get bidders while the ones with less potential will remain with the public sector. I saw an example of this when in Uttar Pradesh we wanted to bring in the private sector in power distribution in the districts. We found that the private sector was keen to take up only the city areas where it was easy to collect power dues and did not want to go into the rural areas at all. This meant that the state power corporation would lose its best accounts and remain saddled with the most problematic. We had then decided to offer a package of rural plus city consumers. Not many bids were received as per this model. This is very much possible in the NMP also. We already saw when the Railways wanted the private sector to run some trains, only the public sector corporation IRCTC came forward. This again gives weight to my argument that the entire NMP list of six lakh crores is not likely to get private bidders.
Moreover, there would be issues relating to the employees. Will the private sector retain them? Will the terms and conditions remain the same? What will happen to the crucial issue of reservation in case the private sector does recruitment of its own? There are various social objectives that these assets are fulfilling and it would need to be seen whether the private sector would continue to do so. Moreover, if the public sector has not been performing then it is due to various structural impediments which would need to be analyzed, otherwise, they would constrain the working of the private sector also. Further, a private-sector monopoly is no better than a public sector one.
It is also important to see how the regulators would respond to this kind of initiative. There would also be the need for an open and transparent dispute resolution mechanism. Finally, a special independent authority would need to be created to monitor the entire process.
NMP is a bold reform initiative that could unlock funds for further development of social and physical infrastructure but there are a lot of implementation issues that need to be handled. Also, we should be aware that the targets set are far too ambitious.