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Daily Current Affairs 07.09.2021 (The long and the short of the NMP, Spirit of federalism lies in consultation, Modi to attend BRICS, SCO, Quad meets in Sept)

Daily Current Affairs 07.09.2021 (The long and the short of the NMP, Spirit of federalism lies in consultation, Modi to attend BRICS, SCO, Quad meets in Sept)

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1.The long and the short of the NMP

It is surprising the Government has avoided mentioning the consequences of asset monetisation on ordinary citizens

In the Budget for 2021-22, the Finance Minister, Nirmala Sitharaman, had announced the Government’s decision to monetise operating public infrastructure assets, declaring this as an important financing option for constructing new infrastructure. She announced that a “National Monetization Pipeline” (NMP) would be launched to achieve this objective . Just months later, the NMP was unveiled, which shows that the Government intends to raise ₹6-lakh crore over the next four years by monetising several “core assets”. The term asset monetisation is not new in this government’s lexicon. It has been used during the proposed disinvestment of Air India and other public sector enterprises. Thus, asset monetisation is de facto “privatisation” of government-owned assets by another name.

Trying to make a distinction

One possible reason for the change in the terminology is the strong political undertones associated with the term “privatisation”. A two-volume NITI Aayog report, which serves as the “asset monetisation guidebook”, explains that the NMP will help in “evolving a common framework for monetisation of core assets” and this will help draw a distinction from privatisation. But is there a functional distinction between asset monetisation and privatisation?

The NITI Aayog report describes asset monetisation as “transfer of performing assets … to unlock ‘idle’ capital and reinvesting it in other assets or projects that deliver improved or additional benefits”. In our view, asset monetisation raises three sets of questions. First, are the assets identified for monetisation “idle” or “performing”? Surely, they cannot be both. Second, can the country’s ordinary citizens expect to receive the purported “additional benefits”? And, finally, could the Government have looked for other avenues for mobilising resources, rather than selling tax-payers’ assets?

The Government has identified “performing assets” to transfer to private entities and these are both strategic and significant. These include over 26,700 kilometres of highways, 400 railway stations, 90 passenger trains, 4 hill railways, including the Darjeeling Himalayan Railway. Moreover, existing public sector infrastructure in telecoms, power transmission and distribution and petroleum, petroleum products and natural gas pipelines are included in the NMP. If such assets were not offered, would the private sector be interested in acquiring rights over them?

Some data

Under the NMP, the Government intends to lease or divest its rights over these assets via long-term leases against a consideration that can be upfront and/or periodic payments. Thus, expected financial flows from leasing or divesting the Government’s share in these entities would be a major benefit for the central government, which is in the throes of a fiscal crisis. At the end of 2020-21, the central government’s debt to GDP ratio had exceeded 60%, increasing from 48.6% a year before. Current expectations are that in 2021-22, this figure will be close to 62%. Given this situation, the NMP is being projected as the ability of the Government to raise resources and to work its way out of the fiscal logjam.

Significant impact

The most surprising aspect of the Finance Minister’s announcement regarding the NMP is that the Government has avoided mentioning the consequences of asset monetisation on the ordinary citizens of the country. To understand this issue, two obvious dimensions need to be considered. First, the assets that are being offered for leasing or divestment have all been created through substantial contribution by the tax-paying public, who have stakes in their operation and management. Second, these assets have, until now, been managed by the Government and its agencies, which operate in public interest and are not driven by the profit-making considerations.

Therefore, charges borne by the public for using these assets have remained reasonable. With private companies getting the sole responsibility of running all these assets, from highways and railways to all the major utilities such as power, telecom and gas, the citizens of this country would be double-taxed. First, they paid taxes to create the assets, and would now pay higher user charges.

The reason for this is simple. Unlike the public sector entities, private companies are mandated, and quite justifiably so, to maximise their profits and to increase the returns enjoyed by the shareholders. In other words, it is not social benefit, but higher private returns that drives the corporates. Therefore, as the Government prepares to transfer “performing assets” to the private companies, it has the responsibility to ensure that user charges do not price the consumers out of the market. This critical dimension has not clearly been spelt out even in the NITI report. It is evident that consumers’ interest can be protected only if the Government can curb profit-maximising tendencies of the companies through regulators.

In the past episodes of privatisation of utilities, instead of effective regulation, there have been instances of regulatory capture instead, resulting in the exploitation of consumers. Take for example the privatisation of the power distribution system in the country’s capital. The then Congress government privatised power distribution, and this resulted in a steep increase in power charges that not only threatened to price out the poorer sections but adversely affected the middle class as well. Providing cheaper power was one of the main election promises of the Aam Aadmi Party, which was fulfilled by providing subsidised power to the consumer. But little does the capital’s electorate realise that the Government is providing subsidies from the taxes it collects. This implies that the city’s taxpayers are either paying higher taxes and/or foregoing public services for “benefiting” from “cheaper” power charges, while the companies are continuing to earn their promised profits.

Tapping the tax route

Finally, since the proposed asset monetisation has resulted from the resource crunch faced by the Government, a pertinent question is whether there were other avenues that it could have been tapped for plugging the resource gap. One possibility was to increase the tax revenue, for at 17.4% in 2019-20, India’s tax to GDP ratio was relatively low, as compared to most advanced nations. Improvements in tax compliance and plugging loopholes have long been emphasised as the surest way to improve tax revenue, but little has been done, as the following example shows. Since 2005-06, the Government has been providing data on the profits declared and taxes paid by companies that file their returns electronically. This data reveals that in 2005-06, 40% of these companies had declared that they were not earning any profits, and this figure had increased to over 51% in 2018-19. Further, the share of the reporting companies earning profits of ₹1 crore or less was 55% in 2005-06; this figure had declined to 43% in 2018-19. These numbers lend themselves to only one conclusion. India’s large companies have been exploiting the loopholes for reporting lower profits and to escape the tax net. But why have successive governments been so indulgent?

On public sector efficiency

According to NITI Aayog, the “strategic objective of the Asset Monetisation programme is to unlock the value of investments in public sector assets by tapping private sector capital and efficiencies”. The NITI Aayog objective assumes that public sector enterprises are inefficient, which is contrary to the reality. In 2018-19, while 28% of these enterprises were loss-making, the corresponding figure for large companies was 51%. Is it realistic to assume that the asset monetisation programme would deliver efficiencies?

Why in News

Recently, the government of India has launched the National Monetisation Pipeline (NMP). The NMP estimates aggregate monetisation potential of Rs 6 lakh crores through core assets of the Central Government, over a four-year period, from FY 2022 to FY 2025.

  • The plan is in line with Prime Minister’s strategic divestment policy, under which the government will retain presence in only a few identified areas with the rest tapping the private sector.

Key Points

  • About the NMP:
    • It aims to unlock value in brownfield projects by engaging the private sector, transferring to them revenue rights and not ownership in the projects, and using the funds generated for infrastructure creation across the country.
    • The NMP has been announced to provide a clear framework for monetisation and give potential investors a ready list of assets to generate investment interest.
    • Union Budget 2021-22 has identified monetisation of operating public infrastructure assets as a key means for sustainable infrastructure financing.
    • Currently, only assets of central government line ministries and Central Public Sector Enterprises (CPSEs) in infrastructure sectors have been included.
    • The government has stressed that these are brownfield assets, which have been “de-risked” from execution risks, and therefore should encourage private investment.
    • Roads, railways and power sector assets will comprise over 66% of the total estimated value of the assets to be monetised, with the remaining upcoming sectors including telecom, mining, aviation, ports, natural gas and petroleum product pipelines, warehouses and stadiums.
      • In terms of annual phasing by value, 15% of assets with an indicative value of Rs 0.88 lakh crore are envisaged for rollout in the current financial year.
    • The NMP will run co-terminus with the Rs 100 lakh crore National Infrastructure Pipeline (NIP) announced in December 2019.
      • The estimated amount to be raised through monetisation is around 14% of the proposed outlay for the Centre of Rs 43 lakh crore under NIP.
      • NIP will enable a forward outlook on infrastructure projects which will create jobs, improve ease of living, and provide equitable access to infrastructure for all, thereby making growth more inclusive. NIP includes economic and social infrastructure projects.
      • Other Initiatives for Infrastructure Development include Scheme of Financial Assistance to States for Capital Expenditure, Industrial corridors, etc.

Monetisation

  • In a monetisation transaction, the government is basically transferring revenue rights to private parties for a specified transaction period in return for upfront money, a revenue share, and commitment of investments in the assets.
  • Real Estate Investment Trusts (Reits) and Infrastructure Investment Trusts (Invits), for instance, are the key structures used to monetise assets in the roads and power sectors.
    • These are also listed on stock exchanges, providing investors liquidity through secondary markets as well.
  • While these are a structured financing vehicle, other monetisation models on PPP (Public Private Partnership) basis include:
    • Operate Maintain Transfer (OMT),
    • Toll Operate Transfer (TOT), and
    • Operations, Maintenance & Development (OMD).
  • Greenfield vs Brownfield Investment
    • Greenfield Project:
      • It refers to investment in a manufacturing, office, or other physical company-related structure or group of structures in an area where no previous facilities exist.
    • Brownfield investment:
      • The projects which are modified or upgraded are called brownfield projects.
      • The term is used for purchasing or leasing existing production facilities to launch a new production activity.
  • Associated Challenges:
    • Lack of identifiable revenue streams in various assets.
    • The slow pace of privatisation in government companies including Air India and BPCL.
      • Further, less-than-encouraging bids in the recently launched PPP initiative in trains indicate that attracting private investors’ interest is not that easy.
    • Asset-specific Challenges:
      • Low Level of capacity utilisation in gas and petroleum pipeline networks.
      • Regulated tariffs in power sector assets.
      • Low interest among investors in national highways below four lanes.
      • Konkan Railway, for instance, has multiple stakeholders, including state governments, which own stake in the entity.

2.Spirit of federalism lies in consultation

Unilateral legislation without taking States into confidence will see more protests on the streets

Recently, various State governments raised concerns about Central unilateralism in the enactment of critical laws on subjects in the Concurrent List of the Seventh Schedule of the Constitution. Kerala Chief Minister Pinarayi Vijayan stated that it is not in the essence of federalism for the Union government to legislate unilaterally, avoiding discussions with the States on the subjects in the Concurrent List. Tamil Nadu Chief Minister M.K. Stalin raised the issue by calling on other Chief Ministers against the Union government usurping powers under the State and Concurrent Lists. The Kerala Legislative Assembly unanimously passed a resolution against the Electricity (Amendment) Bill, 2020, while the Tamil Nadu Legislative Assembly passed a resolution against the controversial farm laws. The States and the Legislative Assemblies standing up for their rights assumes significance in the wake of the Union government introducing a number of laws without taking the States into confidence, thereby undermining the federal principles.

Around a year back, Parliament passed the farm laws without consulting the States. The laws, essentially related to Entry 14 (agriculture clause) belonging to the State List, were purportedly passed by Parliament citing Entry 33 (trade and commerce clause) in the Concurrent List. According to various decisions of the Supreme Court, beginning from the State of Bombay vs F.N. Balsara case, if an enactment falls within one of the matters assigned to the State List and reconciliation is not possible with any entry in the Concurrent or Union List after employing the doctrine of “pith and substance”, the legislative domain of the State Legislature must prevail.

The farm laws were passed by Parliament even as it does not have legislative competence to deal with agriculture. The lack of consultation in a matter that intrinsically deals with millions of farmers also led to massive protests that, incidentally, still continue in streets across India.

‘Redundancy of local laws’

When the Major Ports Authorities Act, 2021, was passed by Parliament earlier this year, even the Bharatiya Janata Party (BJP)-ruled State government in Goa objected to the law, stating that it would lead to the redundancy of the local laws, including the Goa Town and Country Planning Act, the Goa Municipalities Act, the Goa Panchayat Raj Act, the Goa Land Development and Building Construction Regulations, 2010, and the Goa Land Revenue Code.

When it comes to non-major ports, the field for legislation is located in Entry 31 of the Concurrent List. According to the Indian Ports Act, 1908, which presently governs the field related to non-major ports, the power to regulate and control the minor ports remained with the State governments. However, the new draft Indian Ports Bill, 2021, proposes to change the status quo by transferring the powers related to planning, developing and regulating the non-major ports to the Maritime State Development Council (MSDC), which is overwhelmingly controlled by the Union government. Coastal States like Odisha, Andhra Pradesh, Tamil Nadu and Kerala have objected to the Bill that proposes to seize the power of the State government with respect to non-major ports.

Various States like West Bengal, Tamil Nadu and Kerala have also come forward against the Electricity (Amendment) Bill, 2020. The field related to electricity is traceable to Entry 38 of the Concurrent List. The power to regulate the sector was vested with the State Electricity Regulatory Commissions (SERCs), which were ostensibly manned by individuals appointed by the State government.

However, the proposed amendment seeks to change the regulatory regime from head-to-toe with the establishment of a National Selection Committee, dominated by members nominated by the Union government that will make appointments to the SERCs. Further, the amendment proposes the establishment of a Centrally-appointed Electricity Contract Enforcement Authority (ECEA) as the sole authority having jurisdiction over matters regarding the performance of obligations under a contract related to the sale, purchase or transmission of electricity.

In effect, the power to regulate the electricity sector would be taken away from the State government. This is apart from other proposed changes, including changing the licensing regime to facilitate private sector entry without State government approval.

Cause of concern

The Union government increasingly extending its hands on subjects in the Concurrent List is a cause of grave concern as the balance of the Constitution is now turned on its head. The model envisioned in the Government of India Act, 1935, was adopted by the framers of the Constitution and certain subjects were put in the Concurrent List by giving the Union and the State Legislatures concurrent powers regarding them.

The fields in the Concurrent List were to be of common interest to the Union and the States, and the power to legislate on these subjects to be shared with the Union so that there would be uniformity in law across the country. However, one of the worst fears of Constituent Assembly member K.T.M. Ahmad Ibrahim Sahib Bahadur has now come true, with subjects in the Concurrent List being transferred to the Union List over a period of time due to the Union government’s high-handedness.

The Sarkaria Commission Report had specifically recommended that there should be a “coordination of policy and action in all areas of concurrent or overlapping jurisdiction through a process of mutual consultation and cooperation is, therefore, a prerequisite of smooth and harmonious working of the dual system”. It was further recommended that the Union government, while exercising powers under the Concurrent List, limit itself to the purpose of ensuring uniformity in basic issues of national policy and not more.

The National Commission to Review the Working of the Constitution (NCRWC), or the Venkatachaliah Commission, had recommended that individual and collective consultation with the States should be undertaken through the Inter-State Council established under Article 263 of the Constitution.

As the Supreme Court itself had held in the S.R. Bommai vs Union of India case, the States are not mere appendages of the Union. The Union government should ensure that the power of the States is not trampled with. The intention of the framers of the Constitution is to ensure that public welfare is subserved and the key to that lies in listening to stakeholders. The essence of cooperative federalism lies in consultation and dialogue, and unilateral legislation without taking the States into confidence will lead to more protests on the streets.

India, being a federal republic, needs coordination between the Center and the States in many political, administrative, and governance affairs. In order to avoid conflicts, the division of powers is clearly specified through the three lists in Schedule 7 ie. Union list, State list, and Concurrent List. Inter-State Council and National Development Council are other mechanisms/ discussion platforms for conflict resolution between the Center and States.

Inter-State Council

  1. Constitutional Body – Article 263.
  2. Based on the Sarkaria Commission recommendation(1983).
  3. Formed in 1990.
  4. Investigate and discuss the subjects of common interest between the Union and State(s) or among the States.
  5. The present composition of the Inter-State Council is as follows:
    1. Prime Minister (Chairman).
    1. Chief Ministers of all States.
    1. Chief Ministers of Union Territories having a Legislative Assembly and Administrators of UTs not having a Legislative Assembly and Governors of States under President’s Rule (Governor’s Rule in the case of J&K).
    1. Six Ministers of Cabinet rank in the Union Council of Ministers to be nominated by the Prime Minister.
    1. Four Ministers of Cabinet rank as Permanent invitees.

National Development Council

  1. Non-constitutional and non-statutory.
  2. Also known as Rashtriya Vikas Parishad.
  3. It was set up on August 6, 1952.
  4. NDC’s objective is to strengthen and mobilize the effort and resources of the nation in support of the Plan.
  5. The National Development Council is presided over by the Prime Minister of India and includes all Union Ministers, Chief Ministers of all the States, and Administrators of Union Territories and Members of the Planning Commission. Ministers of State with independent charge are also invited to the deliberations of the Council.

Other initiatives for Inter-State Co-operation

The zonal council is another statutory body for inter-state co-operation. You may also note River Water Tribunals. Aspirants are also asked to go through in detail Sarkaria commission recommendations and Punchi commission recommendations.

3.Modi to attend BRICS, SCO, Quad meets in Sept.

Afghan situation likely to dominate agenda amid growing polarisation between the Russia-China bloc, and U.S. and its allies

Prime Minister Narendra Modi will chair a meeting of BRICS leaders including Chinese President Xi Jinping, Russian President Vladimir Putin and leaders of Brazil and South Africa on Thursday, the first in a series of summit-level meetings he is expected to attend in September that will be dominated by discussions on the situation in Afghanistan. The meeting will be held in virtual format due to COVID-19 restrictions.

The PM will also attend via video conference the Shanghai Cooperation Organisation (SCO) Heads of Government meeting being held in Dushanbe on September 16 and 17, but is expected to travel later this month to the U.S., to meet U.S. President Joseph Biden and address the UN General Assembly, officials confirmed.

The meetings will see Mr. Modi straddle both sides of views on the future of Afghanistan, given the growing polarisation between the Russia-China bloc, and the U.S. and its allies on engaging the new Taliban regime.

The BRICS leaders summit on September 9 is expected to focus on four priority areas including the multilateral reforms in bodies such as the UN, the IMF and the WTO, counter-terrorism, technology and people-to-people exchanges, a statement issued by the External Affairs Ministry on Monday said.

“The leaders will also exchange views on the impact of the COVID-19 pandemic and other current global and regional issues,” which is expected to include Afghanistan, where Russia and China have played an important role in talks with the Taliban.

Meanwhile, Foreign Secretary Harsh Shringla returned to India after meetings in Washington to firm up Prime Minister Modi’s visit to the U.S., due to begin on September 23.

The PM’s visit, only his second visit abroad during the coronavirus pandemic, is expected to include meetings in Washington with Mr. Biden, a possible Quad summit on September 23 and 24, and his address to the UN General Assembly on September 25.

Details being finalised

MEA officials said the details of the meetings are still being “finalised”, in view of the uncertainty of Japan’s participation after Premier Yoshihide Suga announced he would resign at the end of the month.

While Indo-Pacific security, and Quad cooperation on climate change, critical technologies and vaccines will be at the top of the agenda at the Summit, the situation in Afghanistan after the U.S. pullout is likely to be discussed as well.

The SCO meeting next Thursday in Tajikistan will see a much greater focus on Afghanistan, given that it comprises regional countries Russia, China, Central Asian nations and Pakistan, and will include a special SCO Contact group meeting.

Mr. Putin, Pakistan PM Imran Khan and other leaders will attend the summit in Dushanbe in person, and Mr. Modi and Mr. Xi are expected to appear virtually at the “hybrid” conference.

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