Daily Editorial Analysis for 04th August 2022

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Public assets sale and the concern of ’fiduciary duty’

GS paper 3: Issues related to planning, Mobilization of resources, Growth and development
Important for
Prelims exam: NMP

Mains exam: Sale of public assets and its impact

The sale of the loss-making national carrier Air India to the Tata Group is a move that evoked a mixed response.

About this Sale

• On October 8, 2021, the Union government announced that Tata Sons was the winner of the bid for the airline for a consideration of Rs. 18,000 crore.
• The Tatas would retain Rs. 15,300 crore of Air India’s debt and pay Rs. 2,700 crore in cash to the Government.
• The seller, the Government of India, would retain a liability of Rs. 46,262 crore that was transferred to a special purpose vehicle, the Air India Asset Holding Ltd (AIAHL).

Problem with government asset sale

• In a private asset sale, there are independent checks and balances, such as
o Regulatory approvals
o The consent of the secured creditors (mostly banks) who will give their consent to park the liability only when they are satisfied that the promoters or the shareholders of the private enterprise would be able to satisfy the liabilities either from the proceeds of the sale or otherwise.
• However, in the case of asset sale by the Government, these approvals are a mere formality.
o When the debt is assumed by the sovereign government, no banks that are directly or indirectly controlled by the government can conduct due diligence independently on the nature of the sale and report fairly on whether the proceeds of sale are sufficient to satisfy the debt because the government has given an undertaking to repay the debt or the government may even force banks into a settlement with lesser repayment or even a writeoff.
o Thus, it is citizens who will end up repaying the debts of Air India.
• Unlike a private asset sale, a government selling public assets and assuming the liabilities without proper planning will impose an enormous debt burden on citizens.
• There is fiduciary duty cast upon the government to act fairly and in a transparent manner while dealing in public assets.
• Air India’s asset sale and retention of liabilities sets a dangerous precedent as it could result in the selling of public assets to government faithfuls and leaving the liabilities on citizens.
• The privatisation of loss-making public sector enterprises may prevent the state from incurring further losses. However, unless the sale proceeds are substantial, genuine and transparent, a crisis of legitimacy may arise.

Electoral bonds and Asset sales

• Anonymous electoral bonds scheme which taps corporate funding to help any political party and where the details are known only to the ruling party(through the government agency i.e. SBI and Election commission), which could fuel mistrust of such asset sales.
• A Right to Information filing by the Association for Democratic Reforms showed that with the State Bank of India as the sole authorised dealer of electoral bonds, out of Rs. 3,429 crore of the total value of electoral bonds generated by the bank (FY1920), the ruling party at the Centre alone devoured a whopping Rs. 2,606 crore, or 76% of the total bonds issued so far.
• This is also the period which saw instances of some major privatisation of public sector enterprises. And this cannot be seen in isolation.

How these sale against federalism

• It is vital to recognise the role of States in establishing a public asset such as Air India
o They have actively participated in the growth of the airline in the form of land and other infrastructure to its offices.
o States were not consulted in the whole process which is a breach of the spirit of ‘cooperative federalism’.
• According to Article 1 of the Constitution, India is a Union of States, i.e. the idea of India as a Union lies with the States, which are the owners of land and responsible for the maintenance of other infrastructure.
o Hence, any unilateral sale of assets by the Union without consulting States would only deepen the mistrust between the Union and the States.
Way forward
• In a mixed economy, private participation is encouraged in areas where government finds it difficult to perform, without making compromises on the social obligation of the state which is as important as a commercial viability.
o The role Air India played in the repatriation of Indians stranded abroad during the COVID-19 pandemic, its evacuation flights during wars and connecting remote areas to the mainland are some examples of social intervention that have to be kept in mind.
• In view of the National Monetisation Pipeline there is a need that centre should consult to states and all stakeholders about any planned divestment or sale of public assets.

The National Monetisation Pipeline (NMP)

• Union Minister for Finance and Corporate Affairs, Smt Nirmala Sitharaman, launched the asset monetisation pipeline of Central ministries and public sector entities: ‘National Monetisation Pipeline’.
• NITI Aayog has developed the pipeline, in consultation with infrastructure line ministries, based on the mandate for ‘Asset Monetisation’ under Union Budget 2021-22.
• NMP estimates aggregate monetisation potential of Rs 6.0 lakh crores through core assets of the Central Government, over a four-year period, from FY 2022 to FY 2025.
• Asset monetisation, based on the philosophy of Creation through Monetisation, is aimed at tapping private sector investment for new infrastructure creation.
• 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.

• The framework for monetisation of core asset monetisation has three key imperatives.
o Monetization of ‘Rights’ not ‘Ownership’, Assets handed back to the government at the end of transaction life
o Brownfield de-risked assets, stable revenue streams
o Structured partnerships under defined contractual frameworks with strict KPIs(key performance indicator) & performance standards
This includes selection of de-risked and brownfield assets with stable revenue generation profile with the overall transaction structured around revenue rights. The primary ownership of the assets under these structures, hence, continues to be with the Government with the framework envisaging hand back of assets to the public authority at the end of transaction life.[/fusion_text][/fusion_builder_column][/fusion_builder_row][/fusion_builder_container]

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