P Chidambaram: On August 23, finance minister Nirmala Sitharaman announced the National Monetisation Pipeline (NMP), which is expected to fetch around Rs 5.96 lakh crore to the government. Following through on a decision announced in the Budget to monetise public assets to fund fresh capital expenditure on infrastructure, the government released a list of projects and facilities to be offered to private investors over the next four years through structured leasing and securitisation transactions.
One, only assets that are already operational are planned to be leased out under the NMP. Two, the government says it only plans to hand over control of its assets for a certain period of time, after which the assets must be returned to the government unless the lease is extended. The top three sectors identified for asset monetisation include railways, airports and coal mining. Concerns have been raised around the move – corporate favouritism, rising costs for users and handing over strategic assets amongst others.
Speaking to The Wire, former finance minister P. Chidambaram laid out his key concerns around the idea of a National Monetisation Pipeline.
P Chidambaram said that as a principle, the private sector does manage infrastructure projects better. But it was too much of a generalisation to say all private sector cases are a roaring success and all public sectors cases are a disaster – something borne out by the number of cases in the IBC (Insolvency and Bankruptcy Code). The former finance minister said the telecom space was a prime example of how poorly thought out the NMP was. He asked, who will lease or buy out the assets fibre or telecom towers; it would either be one of the two players or a consortium of the two players. While he had nothing against the private sector, the problem was around monopolies. The same problem would present itself in the power sector where he believed only a few players would remain. There is nothing in the NMP that it would avoid monopolies if they did emerge.
Next, the prime concern P Chidambaram laid out was that if a private sector company takes an asset on for a long period of time, what are you building into the model to ensure that the asset you leave behind is nearly as good as the asset that was inherited? He asked, “When the finance minister says we are owners and the asset will be returned to us, what asset is she talking about and in what form? It will be a completely depreciated asset.” P Chidambaram said that is why he was proposing depreciation of asset should go into depreciation reserve, and that must be used by the private sector in order to keep the asset in good shape.
Another big concern he highlighted was the threat of price rise for the end user. Unless there is effective regulation prices will go up, to which private sectors will say you are over regulating us. P Chidambaram said he was appalled by the idea that a bulk of the railways will be privatised – UK, France, Italy and Germany all run excellent public railway infrastructure.
Hitting out at the poor implementation of the plan, P Chidambaram said there was no clarity of the process of selection of private players while leasing out infrastructure. He told The Wire, “My biggest fear is the motive of this government. The motive of this government has been suspect ever since they started this exercise of cherry picking airports, ports and other infrastructure and giving it away. That has not been a good experience for the country or the economy. The past does not inspire confidence, so why should the future?”
What about the other end of the story, The Wire asked him – was there enough private sector appetite and financing depth for these lease offers? To Chidambaram’s mind, the invite and rate process will be driven by foreign capital, not the retail domestic investor. Pensions funds and PE funds that will fund the bulk of the SPVs that will finance these assets will be nominally Indian, but foreign owned for all practical purposes – and so it’s possible that foreign capital will own most of this country’s infrastructure.
Importantly, he points out that even if the assets that are privatised are monetised, assuming they will yield Rs 1,50,000 crore is a mistake. “What is the big earning when you are only earning on the difference on that? The finance minister doesn’t respond to that, she says I am going to get Rs 1,50,000 crore but she doesn’t answer the question, ‘What are you getting today?’ You’re not getting zero. Some assets may be loss-making but some will be profit-making, tell us the number? But she won’t tell us the number. Be that as it may, look at the number on the other side – for Rs 6 lakh crore, they are monetising assets worth lakhs of crores. They have disclosed the break-up of this Rs 6 lakh crore but not the capital investment made in the assets being put up for lease. Suppose the value of the asset that you have listed is Rs 200 lakh crore, what is the point of earning less than 2% or 3%? What is the value of the capital you have locked in, what is it that you hope to earn.”
On where the proceeds may finally be deployed, the former finance minister observes, “The fiscal deficit for your current year is Rs 5.5 lakh crore and you are going to make at the maximum Rs 1.5 lakh crore, so how is it going to bolster public investment? Will this amount be used to fill the deficit or will you use it for infrastructure investment? There is no clarity on that.”
In a scathing attack on the proliferation of “infrastructure schemes” announcements by the government, Chidambaram said, “You say the NMP is co-terminus with the National Infrastructure Pipeline. We are building too many pipelines now. There was a 100 lakh crore planned there, what is Rs 6 lakh crore when you have a 100 lakh crore. These numbers don’t make any sense at all. You are trying to dazzle people by these numbers. But if you sit and think about this calmly, they make no sense. What is the objective? First, let the finance minister and government spell out the objective; is it raising revenue, is it partially filling the FD gap or is it enhancing infra spending? Next, what is the criterion for choice of the asset, why have these assets been listed?”