National Monetisation Pipeline far from being a sellout is sound on paper but the devil as always is in details and implementation.
The Narendra Modi government has been pilloried, accused and criticised for its recently unveiled National Monetisation Pipeline (NMP). Shorn of its pompous and high-sounding name, NMP is nothing but operations leasing, period. Airlines give their idle aircrafts on dry (only aircrafts) or wet (aircrafts with both flying and cabin crew) lease in the realisation of the fact that capacity utilisation is the key to profit optimisation. If an idle Air India aircraft is given on lease say for Rs 5 lakh per day, it is a win-win both for Air India and the lessee.
Air India is recovering at least a part of its fixed cost inevitable in a capital-intensive business and the lessee is not putting up a huge upfront investment. On the contrary, he is watching his steps incrementally and taking steps to ensure that his cash register rings beyond Rs 5 lakh and more so as to leave him with a profit after deducting the cost of aviation fuel and office and sales overheads. NMP is a similar attempt albeit on a larger scale at the macro level.
But it has an unstated objective as well—fund mobilisation for our gargantuan infrastructure program given the spectacular failure of our disinvestment programs and tax mobilisations being at the end of its tether. Yes, it could be another non-tax revenue for the government.
The list includes 26,700 km of roads, 28,698 ckt km of power transmission assets, 6,000 MW of hydel and solar power assets, 8,154 km of natural gas pipelines, 3,930 km of petroleum products pipeline, 210, 00,000 mt of warehousing assets, 400 railway stations, 90 passenger train operations, 265 goods sheds, Konkan Railway and Dedicated Freight Corridor, 2, 86,000 km of fibre and 14,917 telecom towers, 25 airports and 31 projects in 9 major ports, and 2 national stadia among others.
The charge of selling out of family silver sounds hollow if things are placed in perspective. India has roughly 6.32 lakh kilometers of roads of which only 26,700 km are going to be leased out. India has 486 small and big airports of which only 25 are sought to be leased out. In fact, the profitable ones and money-spinners are not on offer under the toll-operate-transfer operations leasing model envisaged.
On the contrary, the difficult ones, the ones that are languishing have been cherry-picked by the government. In fact, the lessees can whine that this is cherry-picking in reverse—the lessees having the unenviable Hobson’s choice of picking from the leftovers.
In fact, the fear should be the opposite. Will there be enough takers for such an insipid fare on the table? Will the bids for operations leasing end up the Air India way, with successive attempts at sugarcoating failing to arouse interest? Mind you, the lessee has to pay lease rental to the government before he can hope to make profits. In the event, the Finance Minister’s projection of mobilising Rs 6 lakh crore in the four years up to 2025 could well be a pipedream in the pipeline.
And Rs 6 lakh crore juxtaposed against the planned infrastructure investment during the same period of Rs 111 lakh crore translates to 5 percent. CPM which has lashed out at NMP wildly has got this one right though—how can 5 percent resource mobilisation catalyse the remaining 95 percent? Be that as it may.
The opposition would scream blue murder should the lessees retrench the existing staff inevitable when a business changes hands albeit for a short period. Indeed it would be a tightrope walk for the government when the details fleshed out. You cannot expect a lessee to function with his hands tied, so to speak. In Hotel, Arthur Hailey makes a telling point—running a hotel is not all about inn-keeping but as much about cost accounting and the resultant cost-cutting.
The scintillating novel which is a textbook in quite a few US management schools should be read by every businessman including the aspiring ones and policy wonks as well as by carping critics who should realise that if a sunk investment is not yielding returns, it is better to lease it out to someone else.
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So NMP is not a sellout but salvaging something out of investments gone sour. But as they say, the devil is in the details as well as in implementation. Watertight and foolproof operations lease agreements providing for all contingencies including dispute resolution should be drafted by the line ministries with the help of the Law Ministry and realistic amounts should be kept as the reserve price. A commercial deal clicks if only it leaves something on the table for everyone including the lessees. A sweetener could be a partial income tax holiday for them.
—S. Murlidharan is a CA by qualification and writes on economic issues, fiscal and commercial laws. The views expressed in the article are his own
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(Edited by : Ajay Vaishnav)