Questions of efficiency and equity in monetisation move

Efficiency is touted as the driver of the National Monetisation Pipeline (NMP).
For representational purposes (Express Illustrations)
For representational purposes (Express Illustrations)

Efficiency is touted as the driver of the National Monetisation Pipeline (NMP). Efficiency in economics is the use of economic resources that produce the maximum level of satisfaction with the given input when no one is worse off and at least one person is better off. For brownfield projects without land transfer and safely derisked, NMP boils down to capitalising the revenue streams into a single bullet. The crux of the matter is that the government wants to avoid deficit financing, which may push up the interest rate. Ostensibly, the revenue raised is to be used in gold-plated projects of National Infrastructure Pipeline but can be used anywhere as money is fungible. 

Firstly, NMP gives away the government’s understanding that everything is not fine with its finances and trouble will continue for the next four years at least. Reduction of corporate tax in 2019 which brought down revenue by `1.5 lakh crore per annum without any commensurate benefit need not be revisited now with this alternative. Telltale evidence of unwillingness to explore possible revenue streams like wealth or inheritance tax is visible now.

Second aspect is that the efficiency argument has little steam when product price goes up, lower employment and wages creep in and reduced public service provision looks more than likely. It will be foolhardy to call it an increase in efficiency. Nagraj, an economist, found that in the public utilities it is not a problem of efficiency, but one of pricing and collection of user charges. Both are because of political economy, the same political economy which can’t be wished away even if operators change. 

Given the depressed market situation, most probably the assets will go at throwaway prices particularly when their value is not established. Advisors, consultants and lawyers may help, but they don’t crown themselves in glory in terms of avoiding conflict of interest if one goes by past experience. Assets are most likely to end as fire sale. For unforeseen risk, flexibility is being advocated. But efficiency norms, if left unfrozen, will be like a shifting goal post jeopardising the government’s interest. Alternatively, if it is frozen, competitive interests are so unlikely that the prophecy that it will go to a select few will be self-fulfilling. Given the government’s capacity and the broken judicial system, the concessionaires may continue long after the concession period is over if some weakness in the agreement persists. 

Now comes the capitalisation of revenue streams. It is inefficient because inflation is on the radar and the money that the government will get will be a small percentage of the money the concessionaire will get out of it. It is also inequitable because the revenue stream dries up for the future governments. Assets created from the taxpayers’ money over a period of time are palmed off to a person without project risk and with inflation benefit. Incumbent government gets to spend the entire amount while the revenue flow dries up the next 10 to 30 years depending on the project. Frontloading the revenue stream is also inter-generationally inequitable because we will be meeting the needs of the present generation (hopefully) while compromising the needs of the future generation.

NMP is nothing but a mismatch of earning with expenditure and willingness to expend money to dazzle the country. Given the way incentives are stacked up, there is likelihood of under investment in maintenance, may be cannibalisation later and surplus-driven neglect. If an increase in the price of goods and services is inevitable, it will hardly be efficient if the government underwrites some of the tariff under electoral pressure. In that event one doesn’t know whether the revenue or the cost will 
be more.

Outsourcing was tempting, be it in the Mansabdari or Iqta system of Delhi. Optimism surrounding such arrangement stemmed from a faint hopeful assurance of revenue stream. But it failed when it mattered and the state had hollowed out. Modern Sultanates trying to do the same with economic assets may turn out to be killing the hen which lays golden eggs. Doing this in bits and pieces was tolerable but when it is done on a large scale, it is an invitation to creation of monopolies, crony capitalism, transferring wealth from the not so rich to the ultra-rich and getting a lock in where the government loses. Natural monopolies which supplied goods and services at a smaller cost than others became high cost in the hand of the new monopolist. NMP may not be the sale of crown jewels but family silver for sure.
satya_mohanty@rediffmail.com
 

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