Is Government really selling family silver?

Kalpajit Saikia

(kalpajitsaikia@gmail.com)

Last Monday, the Finance Minister announced the ambitious National Monetization plan with a target of mobilizing INR 6 Lakh crore in the next 3 years from the assets owned by the government. These assets include roads, railway stations, passenger trains, mobile towers, ports, mining, transmission lines, stadiums etc. This is by far the most aggressive reform the government has announced in recent times. As soon as the announcement was made, the opposition parties jumped in to criticize the move. The government is accused of working for the interest of private businesses and selling the family silver. Some critics said that if the government keeps selling its assets, India will be left with nothing after a few years and will become a slave to Capitalists and foreign powers. Some over-enthusiastic critics also compared the situation to the British's exploitation of India. But are these real facts? Is the government stripping the country of its assets? Is the government selling the family silver? Let's analyse this in light of some facts without any emotions.

Firstly, these are not outright sales. These are leases to be given to the eligible party in competitive bidding. The lease period is expected to be around 25 years after which the assets will be handed back to the government. The successful bidder will have to pay the lease amount to the government apart from commitment on a certain amount of capital investments to make the assets more efficient. There will also be a commitment to service delivery and adherence to a framework of pricing and commercial norms. In the majority of the cases, the government will retain a minority stake in the asset throughout the lease period. This means the profit earned by the private organizations will have to be shared with the government. Considering these, it is difficult to infer the opposition to the monetization plan as a representation of facts.

Throughout the world, it is a recognized fact that governments don't know how to run businesses. The key ingredient of successful businesses like talent-based compensation, quicker execution and competitive spirits are always missing in government-run enterprises. Most importantly, businesses need specialists, and the generalist bureaucrats are not the right executives to manage it. That explains the reason why state-run enterprises are rarely successful. In India, the only organizations which are relatively successful are the ones in the Oil Industry. Their success is more attributed to the constrained supply in the face of massive demand rather than the efficiency of their operation. In Gujarati, there is a proverb that loosely translates as "where the king is businessman, the people are beggars." This is proved by the failures of the state-run enterprises time and again.

Let us take the example of electricity transmission and distribution companies. In India, power distribution companies are mostly run by the state. The combined loss of this sector in the year 2021 was around INR 90,000 crore. Because of this loss, these companies are unable to pay the generation companies for the power they procure, the overdue amount being around INR 67,000 crore. This affects the service delivery and despite the availability of excess power in the grids, there are rampant power cuts. The aggregate technical and commercial losses, popularly called AT&C loss, which is a loss in transmission, theft, billing, payment and collection inefficiency is a whopping 24.54%. Almost all the electricity distribution companies in India are bleeding today. And who finances the losses? Of course, the government. The Government has to finance the loss of these companies from the taxpayers' money. Contrast this with the distribution companies in Delhi. After power distribution was taken over by private players in Delhi, the AT&C losses were brought down from 55% in 2002 to around 9% in 2019. The result is 24*7 power supply and no burden on taxpayers to fund any loss. Delhi can provide free electricity to a large part of its population today because of the financial efficiency brought about by the privatization of distribution companies.

Inefficiency in public enterprises is seen in all sectors. In India, because of poor road networks, the trucks in India travel around 300 km per day compared to the global average of 500 km to 800 km. This increases the cost of transportation leading to price escalation of goods. The high consumption of oil by the vehicles increases the oil import bill, leading to fiscal stress on the government. Needless to say, taxpayers pay the ultimate price.

The same is the case with the efficiency of ports. The global average port turnaround time is .69 days. In countries like Japan Taiwan and China, it is .35 days, .44 days and .60 days respectively. In India, the turnaround time is .91days. In contrast to this with Mundra Port, privately owned by Adani. The turnaround time of this port is .46 days. More the turnaround time, more freight cost is incurred by the businesses leading to the high cost of goods. The privately-run ports can only bring the required efficiency and contribute to the larger story of the economic growth of India.

Some critics like former Chief Economic Adviser Kaushik Basu expect the government to do outright sales rather than leasing the assets. He says leasing generates lesser revenue. Also, as the leased assets will have to be returned to the government after 25 years, the lessee will not take care of the assets properly. Asset quality will be very poor at the time of handover to the government after 25 years. While this has some logic, in a country with so much sensitivity towards government-owned assets, a middle path is the best suited to get the process moving.

But the government needs to take some caution while embarking on the monetization journey. Firstly, there should be a right regulatory framework to protect the consumers and prevent possible exploitation of the assets. There should also be a concrete plan of action to prevent any possible emergence of a monopoly player. As these are leases and not sales, there should be a provision in the contracts of timely inspection by the government agencies to protect the quality of these assets. The government needs to consider the interest of the consumers while leasing out the assets to private businesses. Strong regulation combined with the framing of the right code of conduct will ensure the success of this program.

Lastly, what should the government do with the money? Well, this program will be an absolute failure if the money is used to fund revenue expenditure and bridge fiscal deficits. The proceeds of the monetization program should be utilized for funding new infrastructure. This is the perfect opportunity for the government to build a new India, an opportunity to lease family silver to buy gold.