After experiencing the wrath of the pandemic, the economies around the world are on the track of recovery. With demand and supply disrupted due to restrictions in movements, India’s private sector is turning out to be the fuel for its post-pandemic growth.
Given the robust vaccination campaigns and immense, increased spending of the government, funds are a prerequisite demand for the fulfillment of such schemes. Thus, in order to fund these schemes, the country had unveiled a growth-oriented budget. In addition to the growth-oriented budget, privatization was an alternative plan to successfully raise funds to effectively spend on the development. This is being done by emphatically offering the private sector opportunities to revamp and invest in the public sector units. This will involve offering a lease of state-owned infrastructure and offering the opportunity to buy government-run companies.
But given the humungous and ambitious target that the country has set for itself, it will be interesting to note how New Delhi’s targets will manage to generate the private sector interest in its deals and schemes.
National monetization pipeline
It is no news that the finance minister had unveiled its “national monetization pipeline”. This ambitious program effectively aims to raise about 6 trillion rupees over the course of the next four years. This will be emphatically done by leasing government assets across different sectors like roads, railways, power, etc. to private companies. It is here to be noted that the brownfield assets will be leased out to the private companies which will have to be returned to the government after a stipulated time frame.
In addition to the government’s ambitious monetization plan, the government is effectively seeking to raise up to 1.75tn rupees. The amount will be raised in the current financial year by significantly privatizing public companies including Bharat Petroleum and Air India.
Why is there a need for privatization?
It is to be noted that given the humungous cost that the government will be incurring on the vaccination drive and the growth prospects of the country like infrastructure etc., funds are required for such fulfillment. With increased expenditure and low funds due to the pandemic, Government is in an emphatic need to minimize the deficit. This is also needed to raise the requisite capital for which the sale of public sector assets is important
Given the unemployment woes of the country, fundraising through the ambitious monetization program will effectively allow the government to spend lavishly on the infrastructure development in the country, which will help in job creation. In addition to job creation, sustainable economic growth too will be achieved for the long term.
The need to fill the government’s coffers
It is no news that India was one of the worst-hit countries after the USA and Brazil. With high infection rates in the economy, there was the need for funds to effectively boost the public finances that were severely battered by the rising infections and curtailed movement. It is to be noted that India had seen unprecedented contraction the last fiscal year where its GDP had contracted by 7.3 per cent for the whole fiscal year. But in order to control the deficit of the government, the government is effectively aiming for a budget deficit of 6.8 per cent for the current fiscal year.
Given the ambitious targets of the government, all might seem rosy and perfect, but many analysts are of the view that there are chances that the government could miss this target due to the onset of the third wave.
It is to be noted that privatization isn’t always ruthless as many might think. Expansion of the role of the private sector might lead to a range of benefits, like building efficiencies, output increase, immense quality improvement, healthy competition, sagacious cost control, and reduction, and lastly effectively raising cash to reduce the public debt.
The sale of the government assets includes debt-laden carrier Air India, IDBI Bank, and Shipping Corporation of India, which would be included in the national monetization pipeline. As aforementioned, the companies will only be given these projects on lease.
Despite the guarantee from the government that no sale of the public assets will take place, criticism for the Narendra Modi-led government has erupted. With various apprehensions that workers might lose their power and Modi’s extreme fondness for the select few millionaires in the economy, public rage has been at its peak.
According to various analysts, the interest for select assets of the government will be more compared to the others. The interest of the private players will definitely depend on the profit margins and other factors like the duration of the leases and regulatory and tax issues.
Given the aforementioned reasons, the sale of some assets will be more difficult than the others. given that Bharat petroleum is a profit-making company, its sale will not be a problem for the government. But given that Air India is a debt-laden airline, whose woes have been exacerbated by the internal inefficiencies and the pandemic, its sale may pose a difficulty for the government. But some experts are confident that Air India will effectively and ultimately receive a buyer. In fact, some experts believe that its privatization will emphatically be positive for the wide aviation industry.
It is to be noted that with the increased quality of infrastructure, India will be an enticing country for investments. But it is worth mentioning here that India is still an attractive market for many foreign companies. Though there might be some operational challenges, international companies are significantly eager to invest in India.
Edited by Sanjana Simlai.