Govt’s plan to monetise assets has rewards and risks
Ensuring a sufficient flow of funds to the infrastructure sector has been a problem in India. The government itself rarely has enough revenues to match its ambitions on infrastructure investment; the private sector is hesitant about project finance in a domain that is so exposed to political risk; and public-private partnerships have acquired a bad name in the past decade after slowdowns, cost and time overruns, and accusations of corruption. It is understandable, therefore, that the government has now switched to a different approach: Monetising public assets. What the government means by this is that a public sector entity will choose, design, and build a project; the project will then be handed over to an investment trust or the private sector, with the state-run firm retaining ownership at some level. For example, the assets might be bundled together and the income from those securitised. The money thus garnered will be ploughed back into infrastructure investment, solving the financing problem. That, at least, is the theory; how it works in practice is a different matter.
Such asset monetisation is substantively different from privatisation, a road map for which was also promised by the Union finance minister in her Budget speech this month. Privatisation entails with it the possibility of increasing value in the enterprise and a net gain in national income and welfare; asset monetisation would bring consistent revenue for the government. That the government has promised two somewhat contradictory strategies suggests that it is agnostic about methods to overcome its revenue crunch.
Much excitement has surrounded the possibility of land monetisation in particular, given that both the government and public sector enterprises continue to control large tracts of land, many in areas that would render them extremely lucrative sales if they were to enter the market. It is hoped that land monetisation would solve some of the other problems associated with straight-out sales of such land, such as accusations of asset-stripping. Yet other problems are associated with land use changes in such cases. For one, titles to such tracts of land may not be entirely clear. For another, state governments might have some call on the land parcels in question, especially in terms of end-use requirements, and therefore seek to block changes unless they get their share of the pie. In any case, price setting will be a complex task that would require an agency staffed with full-time experts to manage. Without such an expansion of independent capacity, the government would not be able to manage, and any land monetisation programme would stall.
The larger question that will have to be addressed is: First, is this a more productive use of these assets than privatisation? Clearly, as the case of India’s airports has shown, it is more productive than state management alone. The second question is: Is this a sustainable solution to the question of infrastructure finance in India? The answer to this one is not clear, given that this mechanism requires the state initially determine the choice and quality of built infrastructure, which has not typically led to the best outcomes in India. How the asset monetisation programme is implemented will be crucial not just in terms of its success at revenue generation but also whether it becomes a viable model for infrastructure finance.