Australia has lessons for India's plan on managing a fair deal for taxpayers and ensuring public utilities work and are affordable.
The asset-recycling craze that got underway in Australia with the 2013 leasing of Port Kembla and Port Botany near Sydney is reaching India. So is the fear that handing over control of public utilities to a small private sector will hurt the consumer.
The cash-strapped Indian government has identified 6 trillion rupees ($81 billion) in existing revenue-generating assets, which it will monetize over four years to fund an ambitious $1.5 trillion pipeline of new infrastructure. But while New Delhi aims to replicate the fundraising success overseas, it also needs to heed the Australian Competition and Consumer Commission Chairman Rod Sims’s warning last month: Privatize to increase the efficiency of the economy, or don’t privatize at all.
Policymakers in India envisage parting with revenue-earning operating concessions in exchange for upfront payments or investments. The deals will be structured as “contractual partnerships” with the state retaining long-term public ownership. However, to maximize their profit over a limited time frame, investors would naturally want to raise prices, limit competition or cut back on upkeep. Singapore had to nationalize its suburban trains and signaling systems because the main private operator had underinvested in maintenance, leading to frequent breakdowns and stranded, angry passengers.
Similarly, it’s important to prevent today’s lump-sum gains to the government from becoming a cost tomorrow. In New South Wales, where electricity prices doubled in five years after poles and wires were privatized, the government had to step in with an Energy Affordability Package to lower the burden on consumers. The Indian taxpayer, already struggling under extortionate levies on energy, simply can’t afford such largesse.
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