What is disinvestment, monetisation and privatisation

disinvestment definition

In disinvestment the government offloads a small part of its ownership in a particular entity and it continues to be the majority owner that continues to be in the management.  so you may have a public sector bank let’s say in which now 30 percent of the shares are held by the public or institutional investors the government continues to be the manager of that institution so all the yields that are associated with the government being the owner and manager they continue in .

disinvestment in India has actually failed so badly in the last few years. for the last couple of years or rather since 2017  whenever the government had a target to disinvest, it has not been able to succeed doing it at all investors in the private sector have not been enthused

privatization definition

 privatization by implication means that here is the government undertaking in which it is willing to sell a majority of the shares to another private sector player who will now become the owner and manager and now will have private management in the institution so we have privatization where an entire company would get sold . This is what the government has been trying to do with air india but in the case of air india in particular the conditions attended to privatization are so discouraging that no investor has been willing to come forward .

like for example air india is known to be heavily overstaffed and it has an aggressive trade union and the government says that any investor who wants to buy in india will have to necessarily continue with all the workforce that it has at least for three years till then you can’t retrench .

now that is one of the key reasons why it’s a loss-making entity . so privatization means you are selling off the entire undertaking but if you have these kind of attended conditions you are not going to be able to succeed air india is a classic case .

so now that disnvestment and privatization do not find flavor and favor with the private investors the government is talking about monetization .

monetisation meaning

so for example, the railways have got about 47 000 hectares of prime surplus land . you don’t sell the railways but why don’t you sell the land of the railways and get the money or there would be ntcp with a ntpc with a power plant which is not being managed very well. it is under utilized . You don’t you sell the entire power plant to a private company you don’t sell NTPC  you don’t sell the share of ntpc but you share an asset of ntpc . that’s what monetization is .This is what the government is talking about monetizing roads, highways, ports, airports, gas pipelines, telecommunication, towers,  and even sports stadiums.  So just to  put it in a simple terms you are saying that if i sell an airplane then that is monetization and if i sell air india that is privatization

impact of monetisation on indian wealth ?

now if i start selling roads bridges sports stadiums aren’t we selling the wealth of the country ? well , if you go by a conventional thinking you are selling the wealth of the country ,the silver of the family is being sold .

But look at it from two perspectives, if the wealth of the country is being mismanaged and misused and is underutilized or unutilized and it gives no returns on investment for public good . So  if you think you can recycle the wealth out of it then recycle it and put it back for better use so the government is talking that they  intend to monetize and put it for building infrastructure.  

so if the wealth generated from monetisation goes into infrastructure that is not really selling the family silver because it’s recycling.  it’s like you know breaking old gold ornaments and making new ornaments but if the government is going to sell assets in order to meet its revenue expenditure, paying salaries, pension and interest then you certainly sold family silver and in such scenarios it is not favourable current circumstances . It looks like that because the government needs revenue the government needs revenue not to build infrastructure but the government also needs revenue to run the operations .

So obviously a lot of this money is going to go into running the operations. In fact, the budget speech of the finance minister is an indicator because when she spoke about disinvestment, privatization and monetization she said that these are the measures that are being initiated in order to ensure that the fiscal deficit of the government which is the excess expenditure of the government or the receipts they intend to ensure that it COMES DOWN  year after year by 2025 . So to complete that  they have taken privatization ,monetization as one of the ways to achieve that.

 so if you go by her speech there is a very clear indicator that by selling the family silver you might be just meeting expenditure for running the government

Monetisation of strategic assets

There are certain critical segments where the government would have to have a presence those are the strategic sectors as they call it for example atomic power, plants need to be run in the government sector even very critical defense technologies,  we would still say that it ought to be in the government sector so where there are these very critical sectors the government needs to have what they call a commanding presence

 But  there are not too many in the rest of it you don’t need government presence you don’t need the government to run power plants,or run fertilizer plants  or run chemical plants or for that matter even run railways and roadways or manage ports.  We think in all of them the government should exit from it and this government had said last year that they are trying to identify strategic sectors in that they would have a commanding presence.  in the rest of them  they don’t intend to have a presence .

but it is easier said than done . once a psu or a psc set up there are so many vested interests in it right from the politician, babu to all the vendors that trying to get the government ownership out government management out is not so easy to do absolutely .

secondly what about welfare industry what about insurance for instance if government doesn’t have presence in the insurance sector you see a poor man will never be able to get a good insurance policy for himself because unlike other countries developed countries we don’t have social security we depend on these insurance to lead our lives.