The Monetization of Assets is not a sudden thought but was well planned in the Union Budget 2021-22. The framework for core asset monetization includes three main imperatives: Monetization of rights rather than ownership, brownfield de-risked assets and stable revenue streams, and structured partnerships within specified contractual frameworks with specific KPIs and performance criteria.
With privatization, we are accepting that the government is fantastic at creating things but terrible at running and maintaining them. It is also good in terms of ensuring the government involvement while setting up huge project and transferring the same to private sector for operations. We need to keep in mind that when private players begin operations, their project plan is to make profit, while when the government offers the service, the goal is to give excellent services to the public. There is also a question about the capacity of Indian private sector to invest at this juncture, and most probably, the investment will go to entities outside the country.
According to economist Rathin Roy, the government has been suffering from a “silent” budget crisis (2019). The economy was wrecked with a series of catastrophes like demonetization, GST, followed up with a catastrophic tax reduction for corporations of Rs 1.45 trillion. Thus, the government was forced to raise prices of inelastic commodities such as petroleum goods sharply to compensate for the corporate tax cuts. The cost of the increase in direct taxes is borne indirectly by lower and middle-class consumers, and as a result, their spending decreases, driving down GDP growth even more.
Finally, the epidemic even worsened the situation necessitating the need for new sources of income for the government. Here is a quick summary of the advantages and disadvantages of National Monetization Pipeline.
ADVANTAGES
-
- Asset monetization creates new revenue sources for public-sector organizations. Many of these public-sector organizations’ assets are underutilized and therefore failed to generate adequate revenues. Monetization of underutilized public investments will help PSUs get financial resources and, in the long term, will lead to more effective use of these resources.
-
- To have a multiplier impact on growth and employment, private owners increase productivity and decrease expenses. This scale impact of privatization will likely increase volume of productive employment.
-
- There will be higher level of automation which will result in improved and quality services to customers.
-
- Soon the Private sector is to be able to produce more resources (assuming they will get management control), the economy will be revitalized, and revenues from monetized assets will contribute to the construction of new infrastructure and the complete recycling of future assets. The growth of high-quality infrastructure over the next three decade will result in better economic prosperity.
DISADVANTAGES
-
- The asset monetization would likely result in monopolization and inflation due to the disinvestment of critical infrastructures. Dis investing in critical assets like airports, energy, railways to private players would cause end consumers to be at the mercy of such entities.
-
- If the assets are brought by foreign entity, then most likely such entities or countries affiliated with such entities will secure better holding over our crucial infrastructure. This will have catastrophic effect in case of a strained relation with such countries. Assuming the infrastructure is going to be run by ABC company which is from a CBD country and the CBD country is not in the good tastes of majority of our citizen then it would create political problems.
-
- Private businesses will be benefited from public services by cutting corners or under investing which will damage the public interest.
-
- Job loss, hire & fire, disappearance of existing titles/jobs, pay cutbacks will become quite common in the labour market which will result in job insecurity in the job market,
-
- Such private entities will have better maneuvering capabilities and even if the government establish rules to limit price increases, they will decrease service quality or its efficiency.
-
- Monopolization, and lack of accountability in delivering critical services may come in the forefront and will have greater impact in our security
Privatization was implemented on the idea of free markets and customer choice. However, public services are often what economists refer to as “natural monopolies.” A natural monopoly is a kind of monopoly that develops in a certain sector owing to high start-up costs or significant economies of scale in doing business. A natural monopoly business may be the only provider in a market, geographic area, product, or service. Railways, airlines, and electricity are examples of natural monopolies. Natural monody removes the notion of competition, which is a major motivator of efficiency in the private sector.
DART Consulting provides business consulting through its network of Independent Consultants. Our services include preparing business plans, market research, and providing business advisory services.
More details at https://www.dartconsulting.co.in/dart-consultants.html
