PPP Investment Models: HAM, Swiss Challenge, Kelkar Committee

Consequences of asset monetisation on ordinary citizens

Note4Students

From UPSC perspective, the following things are important :

Prelims level : NMP

Mains level : Paper 3- Asset monetisation issues

Context

In the Budget for 2021-22, the Finance Minister had announced the Government’s decision to monetise operating public infrastructure assets. The National Monetisation Pipeline (NMP) was unveiled, which shows that the Government intends to raise ₹6-lakh crore over the next four years by monetising several “core assets”.

Four issues with NMP

1)  Assets transferred would be performing assets and not idle asset

  • Strategic and significant asset: The Government has identified “performing assets” to transfer to private entities and these are both strategic and significant.
  • These include over 26,700 kilometres of highways, 400 railway stations, 90 passenger trains etc.
  • Moreover, existing public sector infrastructure in telecoms, power transmission and distribution and petroleum, petroleum products and natural gas pipelines are included in the NMP.
  • Under the NMP, the Government intends to lease or divest its rights over these assets via long-term leases against a consideration that can be upfront and/or periodic payments.

2) Consequences for ordinary citizens

  • There are two dimensions about the impact on common citizens.
  • Public as a stakeholder: The assets have all been created through substantial contribution by the tax-paying public, who have stakes in their operation and management.
  • Double taxation: These assets have, until now, been managed by the Government and its agencies,  which operate in public interest.
  • Therefore, charges borne by the public for using these assets have remained reasonable.
  • With private companies getting the sole responsibility of running all these assets, prices of these services will go up, as resutl the citizens of this country would be double-taxed.
  • First, they paid taxes to create the assets, and would now pay higher user charges.
  • Concern: Therefore, as the Government prepares to transfer “performing assets” to the private companies, it has the responsibility to ensure that user charges do not price the consumers out of the market.

3) Are there other avenues to plug the revenue gap?

  • Increase tax revenue: One possibility was to increase the tax revenue, for at 17.4% in 2019-20, India’s tax to GDP ratio was relatively low, as compared to most advanced nations.
  • Improvements in tax compliance and plugging loopholes have long been emphasised as the surest way to improve tax revenue, but little has been done, as the following example shows.
  • Since 2005-06, the Government has been providing data on the profits declared and taxes paid by companies that file their returns electronically.
  • Data shows that India’s large companies have been exploiting the loopholes for reporting lower profits and to escape the tax net.

4) Efficiency issue

  • According to NITI Aayog, the “strategic objective of the Asset Monetisation programme is to unlock the value of investments in public sector assets by tapping private sector capital and efficiencies”.
  • The NITI Aayog objective assumes that public sector enterprises are inefficient, which is contrary to the reality.
  • In 2018-19, while 28% of these enterprises were loss-making, the corresponding figure for large companies was 51%.

Consider the question “How asset monetisation is different from the privatisation? What are the issues with the National Manetisation Pipeline that seeks to monetise the assets?”

Conclusion

The government should address the issues mention here associated with the roll out of the National Monetisation Pipeline to make it a success.

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