In desperate times, Indian government now plans to borrow against national assets

Yesterday, India's Finance Minister announced a brave new asset monetisation plan. Till 2025, the Indian government plans to raise about $80 billion by borrowing against existing assets such as roads and railways. The list of assets identified is as follows -


A lot of hue and cry has is happening because those in opposition perceive this as a sale of strategic government assets. Since they are considering it as a sale, there is also a question around the price at which transfer of these assets will happen. After all, any government in India is notorious for selling assets at cheap prices to the private sector, thereby generating losses for the taxpayer.

The government however as made it clear that no sale will happen and that the government will retain ownership of all assets. What the government will do is transfer the identified assets to private players for them to monetize the assets and then transfer the assets back to the government after a specified timeframe. Sounds really weird.

To me, what this means is that the government is raising upfront cash against the payments that can be generated from the assets. For example, let's take a newly constructed road. The government collects INR XX toll each year from the road. For 5 years, the amount is 5XX. The government will hand over the asset for 5 years to a private player and then get cash worth 4.5XX upfront. The private player can then choose to hike toll payments on the road and generate more than 0.5XX from the investment. That increase in toll is what is worrying the citizens. Also, while this upfront cash can be used to fund new projects this year, how will the government cover-up for the revenue shortfall in the next 5 years. That remains to be answered and will probably remain unanswered till this government is in power.

The government is projecting that new infrastructure will help generate economic growth and jobs. However, as with most government projects, achieving something in 4 to 5 years is next to impossible. Just the execution of a lease/sale will take a year and then things will be left to the Indian bureaucracy which is quite slow to act.

It also paints a sad picture of the difficult economic situation India is in at the moment. This government has clearly lost the plot when it comes to managing the economy effectively. The government is already making people suffer thanks to high inflation which will not subside in the near future. Weak monsoon in the North of India will make matters worse in the coming months as crop shortages will lead to a spike in food inflation and, lower income for farmers will negatively impact the rural economy. The vaccination program will most likely complete in the second half of next year and anyway, there are talks of a third jab. I wonder when will India's economy fully open up but the government is digging a huge hole for itself from this asset monetisation program. Private sector investment has already dried up and given that India's disinvestment plans never seem to fructify, I doubt if this asset monetisation plan will succeed.

For an average person, this plan should be a sign of weak economic conditions, a government with little funding to do anything for its citizens or invest, and a high inflation scenario in the near future. Brace yourself for a hard economic landing in the times to come.

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