India’s awkward journey to infrastructure privatisation

By on 05/12/2021 | Updated on 24/03/2022

Despite the collapse of its plans to liberalise agriculture markets, India’s government is pressing ahead with an ambitious programme of privatisations and infrastructure leases. Abhimanyu Kumar reports on a radical and controversial scheme designed to fund a new generation of infrastructure

In the glory days of Air India, the government-owned airline commissioned Salvador Dali to design a limited-edition ashtray for its first class passengers. Demanding – and receiving – a baby elephant as payment, in 1968 the artist duly produced a design incorporating a glazed blue snake and supported by three surrealist figures.

Since then, the 500 limited-edition ashtrays have been scattered to the four winds, with most ending up in private collections – and now Air India too is leaving the public sector.

After economic liberalisation opened up the skies in the early ‘90s, private operators came to dominate the most lucrative routes, with passengers avoiding a national carrier seen as stodgy and poorly-managed. Poor management by ministers added to the airline’s troubles, and in October the government sold Air India to Tata Sons: the vast Indian firm that, back in 1932, set up the airline – only to see it nationalised 20 years later.

The sale – for which the government received 18,000 crore rupees (US$2.4bn) – comes at a time when the Bharatiya Janata Party (BJP) administration is rapidly privatising government-owned companies and leasing out infrastructure. Alongside Air India, the government is currently selling 17 businesses – including its stake in Bharat Petroleum Corporation Ltd, reckoned to be worth about US$6.6bn. And under a new scheme called the National Monetisation Pipeline (NMP) the government plans to raise six lakh crore of rupees (US$80.6bn) over four years by leasing assets to the private sector, investing the money in creating new infrastructure. The NMP covers a huge range of Indian infrastructure, including roads, ports, airports and railways; mining, power generation and transmission; and sports stadiums, warehouses and housing. Transport infrastructure is expected to generate over half of the revenue, with power producing 15%.

Roads for rent

The NMP is the brainchild of NITI Aayog, the government’s in-house economics think tank (profiled by GGF earlier this year). The pandemic has bled the system dry of resources for investment – but new infrastructure is required to revive the economy, it argues in an NMP strategy document. “In the wake of COVID-19… there is a pressing need on the public outlay towards social sector priorities and economic stimuli initiatives, thereby necessitating exploring of alternative mechanisms such as Asset Monetisation with an increased vigour,” it says. 

“Asset monetisation, based on the philosophy of creation through monetisation, is aimed at tapping private sector investment for new infrastructure creation,” the government said in a statement. “This is necessary for creating employment opportunities, thereby enabling high economic growth and seamlessly integrating the rural and semi-urban areas for overall public welfare.”

Explaining the urgency behind the move, Devendra Pant, chief economist at India Ratings and Research, says: “We need huge public investments to create social [benefits], such as healthcare, as well as physical infrastructure in terms of roads, ports and others. But the private sector is not willing to take a lot of risks due to the prevailing economic situation, as they have no guarantee of seeing returns on their investments. Building infrastructure is expensive, and returns are rarely immediate.” 

Pant backs the NMP approach, as the only way to attract private investment into essential infrastructure – though he warns that the government must make sector-specific plans, rather than adopting the same approach in every industry. “One-size-fits-all policies are not going to work,” he says.

The enemies inside

NITI Aayog’s plans have been attacked by the opposition Congress party, though – with national spokesperson Supriya Shrinate calling it a “bargain garden sale” and urging the government to “stop putting India on sale”. And some of the NMP’s critics sit uncomfortably close to the governing BJP: the Bharatiya Mazdoor Sangh, a trade union affiliated with the Rashtriya Swayamsevak Sangh – the BJP’s parent organisation – has also opposed the plan. 

“The government is listening to Harvard-educated economists who sit in an [air-conditioned] room and make policies. They do not know what is the reality on the ground. Our home-grown economists who are connected to the grassroots should be consulted,” says Girish Chandra Arya, a senior leader of the BMS. Asked whether pressure from foreign organisations such as the International Monetary Fund – which has advocated such policies before – might be behind the government’s decision, Arya opined that the government was strong enough to withstand such pressures, “but it is the bureaucrats such as those sitting in the NITI Aayog who are taking the call.”

Arya argues that all the money generated from a particular sector should be reinvested in that industry. And he questions the value of privatisations and infrastructure leases when most government-owned companies are currently profitable. “There are 330 ‘public sector units’ in the country, out of which only 77 are loss-making,” he says. “This is like killing the golden goose for short-term gains.”

The NMP has already sparked protests, with a long-running campaign against the sale of Vizag Steel Plant in South-East India. NITI Aayog will be watching carefully – for the government has just abandoned its plans to reform agricultural produce markets, giving up in the face of a year-long campaign by farmers’ groups. As GGF noted in May, the clash between India’s farmers and its market reformers is “likely to help shape the future of both India’s economic policy, and the government’s in-house economics policy institution itself.” In the struggle between the champions and the opponents of open markets and small states, round one has been won decisively by their opponents. The government’s plans to privatise and lease out its assets have not, so far, prompted such popular outrage – but even the popular BJP administration doesn’t always get its own way in the world’s biggest democracy. NITI Aayog has planned its journey down the road to economic liberalisation. The lease agreement on that road has not yet been signed, however, and success is far from guaranteed.

About Abhimanyu Kumar

Abhimanyu Kumar is a journalist based in New Delhi, India. He writes on issues related to politics and governance for Indian and foreign media. He was previously with The Hindu and The Sunday Guardian.

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