The revenue share conundrum

States should focus on creating hubs in privatised airports instead

The growing demand by some states for a revenue share in those airports that are up for privatisation will be a dual test for the Union government on cooperative federalism and the trajectory of the mammoth National Monetisation Pipeline (NMP) programme. The demand, which was first made by Dravida Munnetra Kazhagam (DMK)-ruled Tamil Nadu and has been echoed by Chhattisgarh, where the Congress is in power, and Jharkhand, run by the Jharkhand Mukti Morcha — all the parties concerned are opposed to the Bharatiya Janata Party (BJP) — is a response to the plan by the Airports Authority of India (AAI) to earmark 25 airports for privatisation between 2022 and 2025 as part of the NMP. All three states have airports on the AAI’s list. The DMK government has demanded not just a share of revenue in newly privatised airports in Tamil Nadu but also equity against land provided by the state for building new airports.

Prima facie, the demand is a logical one, given the fact that all these projects involve the allocation of state-owned land, and should be accepted in the interests of congenial Centre-state relations, which have been noticeably fraying in recent years. The big issue here, however, will be the finance ministry’s assumptions of the government’s share in estimated earnings of ~6 trillion over three years from monetising the assets of select central ministries and public sector entities. If the government chooses to meet the states’ demand for airports, it is possible that other states may make similar demands for other central government-owned facilities and factories under the NMP project, since state-owned land has been provided for most of these at some point of time or the other.

This will not only require a reassessment of the Centre’s revenues from such projects, but add another level of complexity to an already intricate exercise. The NMP proposes to “monetise rights, not ownership”, implying that assets will revert to government ownership after the stipulated life of the transaction. There is also the practical consideration that just 16 airports of the AAI’s 136 have made profits since 2018-19, with the pandemic only worsening a bad situation. In fact, even in normal years, the bulk of the airports of the AAI made losses, suggesting that the earnings even from gross revenue are meagre. In reality, then, the states may be chasing a chimera.

The more constructive route for states looking to cash in on airport privatisation is to focus on their own public-private partnerships in building the infrastructural links that would convert these utilities into domestic and international transportation hubs. Chandrababu Naidu as chief minister of undivided Andhra Pradesh had understood the importance of this symbiosis, focusing on establishing Hyderabad as a global conference centre with international airline linkages in the newly privatised airport, good road and rail connectivity, and upscale hotel complexes. Chhattisgarh and Jharkhand, which regularly host international hockey tournaments in world-class stadiums and facilities that exist in islands of low-quality urban life, could feasibly do the same for sports tourism as many smaller cities in Europe have done. Creating this sort of ecosystem would generate far greater dynamism in terms of job generation and economic activity than mere rentier extraction from the NMP, given all the uncertainties embedded in that exercise.