An interesting caricature appeared recently in a news portal. A man in suits, representing private sector, is precariously hanging in the air holding one hand to the branch of a tree. Next to him is a woman, apparently Union Finance Minister Nirmala Sitaraman, clutching on to another branch of the same tree and suspended in the air. While the man (private sector) is hoping that the government will come to his rescue, the government is longing for the private sector to come to its rescue. This depiction unmistakably portrays the desperate situation both of them are facing. (See the caricature in the cover story).

 The recent announcement of the government to opt for National Monetization Pipeline – leasing out its assets to private sector entities for a particular period – is seemingly the result of the government’s ambitious plan of sale of public firms not reaching anywhere near the target. In the last few years, the target of disinvestment announced in the Budget has miserably failed, forcing the government to frantically look for an alternative to generate revenue. The asset monetization plan seems to be a baby born out of that frenzied search for revenue mobilization.  

The recycling idea might look great. The plan enables the government to amass funds from private players without transferring the ownership of the assets to them. The government-owned roads, railways, power plants, gas pipelines, airports, ports, warehouses, etc. will be leased out for long periods – probably running into several decades – for upfront or periodic payments. The private sector is expected to operate and maintain the assets based on the terms of the contract. The logic behind this scheme is that the private sector, through better efficiency compared to the sluggish way of government work, would be able to operate them profitably. The revenue that accrues from this arrangement would be reinvested by the government in new infrastructure or deployed for other public purposes. Moreover, the assets transferred would be back into the government kitty after the expiry of the lease period. The spin doctors are marketing it as the panacea for India’s dire need for funds to finance its dream projects. 

But all is not hunky-dory as it looks. Since the private players have to make profit out of the assets they take on lease, the product/service prices could go up phenomenally. As there will be only a handful of private players who will manage large infra assets, there is the danger of monopoly or semi-monopoly situation. After all, no corporate house is in the field to do charity. For example, the consumers may end up paying higher tolls on highways, user charges on airports, increased rate for piped gas, etc. Moreover, once the government hands over projects to private players, it would not be in a position to intervene during the contract period even if the latter’s decisions go against public interest. Since the leasing period could run up to several decades, it could lead to long-term headache for the changing governments as there could be a clash of interests between the contracting parties. Working out the nitty-gritty of the mega plan, which is expected to earn an ambitious figure of Rs. 5.96 lakh crore for the government, is not going to be an easy task. In trying to unlock the value of public assets, will it end up tying the government in knots?