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The National Monetization Pipeline Explained

By Adems Jimmy George and Stuti Sharma

The 'National Monetisation Pipeline (NMP Volumes 1 & 2),' an asset monetisation pipeline for central ministries and public sector businesses, was presented by the Union Minister of Finance and Corporate Affairs Mrs Nirmala Sitharaman. This method of asset recycling could be utilised by governments and public sector organisations that own and run assets such as railways, airports, public good warehouses and are primarily responsible for providing infrastructure services to meet the growing demand for better public assets and services. Based on the mandate for "Asset Monetisation" in the Union Budget 2021–22, the pipeline was designed by NITI Aayog in consultation with infrastructure line ministries. Over four years, from FY 2022 to FY 2025, NMP anticipates a total monetisation potential of Rs. 6 lakh crores through central government core assets.

Asset monetisation, often known as an asset or capital recycling, is a frequently used corporate process around the world. This entails transferring performing assets for a limited time to free up "idle" cash and reinvesting it in other assets or projects that provide greater or extra advantages. This strategy might be used by governments and public sector organisations that own and operate such assets and are mainly responsible for delivering infrastructure services to satisfy the surging demand for improved public assets and services.

The government must provide a solid pipeline of attractively structured brownfield projects for the asset monetisation plan to move forward in the correct direction. Long-term investors need a steady stream of transactions and visibility into them across asset classes. A healthy asset pipeline enables investors and asset owners to plan their capital raising and investment deadlines, as well as track and analyse asset performance. In this regard, NMP was announced in the Union Budget 2021-22. NMP can contribute to the creation of a standardised framework for the monetisation of core assets.

Why is asset monetization necessary and is this a newly introduced concept? Finding the resources to create physical assets in a country like India, which has a significant infrastructure deficit, is a difficult undertaking. As a result, the government wants to monetize existing infrastructure assets by leasing them to private enterprises for a predetermined period in exchange for a revenue share. It will assist the authorities in easing budget limitations and freeing up balance sheets so that a whole new infrastructure may be built. For example, a government-built stadium that is unused for the majority of the year can be leased to a private entity that can effectively manage it by presenting cultural events and charging the public to use it.

Further, India has historically used public-private partnerships (PPP) to commercialise its assets. The PPP model was used to construct the Delhi Airport. The concession was structured to continue for 30 years after which it was supposed to undergo the process of renewal or be passed to the Indian Airports Authority (AAI). The project, which began in 2006 and ended in 2016, cost a total of 12,500 crores, allowing AAI to build world-class infrastructure at no additional expense. The toll rights for the Mumbai-Pune Highway and the erstwhile Mumbai-Pune Corridor were awarded to Maharashtra State Road Development Corp. Ltd in 2020 for 8,262 crores.

How is asset recycling different from privatization?

The National Monetisation Pipeline, unlike privatisation, (sell state-owned corporations to the private sector), or disinvestment, (sell shares of public sector units to non-state firms or individuals), aims to achieve something else.

“The NMP is talking about brownfield assets,” said Finance Minister Nirmala Sitharaman, “where investment has already been made and which are either languishing, not completely monetised, or remain underutilised.” “So, by bringing in private involvement, you'll be able to better monetize it, and with whatever resources you obtain, you'll be able to invest in further infrastructure building. The NMP intends to mobilise resources for infrastructure finance, as stated in the Union Budget. Setting up a development finance institution (DFI) and increasing the percentage of infrastructure investment in the national and state budgets are the other two ways to get resources.

The concept is frequently referred to as "asset recycling."

In essence, the government delegates operating responsibilities and revenue rights for assets such as roads, power transmission lines, stadiums, and warehouses to a private operator. In exchange, the government receives a sum of money upfront, which it should ideally invest in other infrastructure, essentially unlocking value in existing projects so that the money may be invested in new development. In an ideal scenario, this would allow the government to implement a large-scale infrastructure plan without adding to the government's existing debt.

One of the most important aspects of this strategy is that the government retains control of the underlying asset. Asset monetisation will take place through the Public-Private Partnership ( PPP ) Model and Investment Trusts, according to one key declaration.

Collaboration between a government agency and a private-sector firm that may be utilised to fund, develop, and run projects such as public transit networks, parks, and convention centres are known as a public-private partnership. Financing a project through a public-private partnership can help the project be done faster According to the report from the Database of Infrastructure Projects in India, there are around 1824 projects with a total project cost of 2,495,539.92 ( in Rs Crore )

An Infrastructure Investment Trust (InvIT) is similar to a mutual fund in that it allows modest sums of money from potential individual/institutional investors to be invested directly in infrastructure and receive a tiny percentage of the revenue as a return. In terms of characteristics, invITs are similar to mutual funds or real estate investment trusts (REITs). InvITs may be thought of as a modified form of REITs tailored to the infrastructure sector's unique needs.

List of sectors being privatised

The government has picked 13 sectors — including airports, trains, highways, shipping, and gas pipelines — that would be privatised as part of the ambitious NMP, which intends to monetize the government's brownfield infrastructure assets. The following is a list of everything that will be privatised:

Possible Caveats in the Implementation of the Policy -

Asset monetisation, also known as asset recycling, is not a new concept, but the monetisation of strategic assets has sparked controversy among people. During the UPA's term, the airports of Delhi and Mumbai were privatised, and railroads were also sought to be privatised. The Maharashtra government, which is ruled by Congress, monetised the Mumbai-Pune Expressway for Rs 8000 crore. Nonetheless, the UPA coalition raises many concerns about the approach. Former Union finance minister P. Chidambaram claimed during a news conference that Congress never sold off vital assets. He said, "We always ensured that there is no monopoly in monetisation as we chose assets based on criteria". There are serious fears about employment losses following the monetisation. By awarding bids, monetisation assists the government in obtaining income. As a result, the government can reinvest in additional infrastructure projects. As a result, new career opportunities arise. This explanation will have to be waited and seen.

The first and most serious complaint levelled against the Narendra Modi government is that it has a habit of presenting overly ambitious initiatives with little execution, as seen by the 5 trillion economy forecast. In terms of scale and the types of assets planned to be monetised, NMP is extremely ambitious.

Another significant problem is the Valuation Challenges. Over a lengthy time horizon, such as ten years, it is extremely difficult to get the valuation correct. The growth of traffic on a road or highway is influenced by causes other than economic growth. If the pace of traffic increase turns out to be larger than the government estimated when valuing the asset, the private operator will profit handsomely. Alternatively, if the successful bidder pays a high amount for the asset, the toll charge will be raised dramatically. The customer is the one who pays the price. It may be claimed that a competitive auction procedure would address these concerns by obtaining the best price for the government while also increasing efficiency.

Another significant accusation thrown is the establishment of monopolies in each industry, as seen by Adani Airports' control of six Indian airports. The lack of transparency will be a big issue, and the government should come up with a remedy. Furthermore, the Modi government's track record of selling has fostered monopoly, with only a few individuals profiting rather than the nation. Instead, it should be leased out through a competitive bidding process that is open and transparent.

Several criticisms have been levelled against the PPP model, particularly during the 2008 economic crisis, when India's GDP growth slowed sharply and numerous PPP projects defaulted on bank loans.PPP initiatives have been stymied by difficulties such as contract disputes, non-availability of capital and legislative roadblocks linked to a land acquisition. An Infrastructure Investment Trust (InvIT) is being proposed as a potential alternative to using the stock market to raise funds. However, there is one thing we should consider before settling down with the concept: many believe the current stock market boom is a bubble, causing increased fears in the global financial system. Both the PPP model and the Infrastructure Investment Trusts strategy of tapping the stock market have major flaws, as history shown

Thus, The government must pay heed to asset monetisation issues and use them effectively to boost economic efficiency. The administration should also state how they plan to address the problems and errors that plagued previous PPP models. Independent monitoring of the process is required to guarantee optimal implementation and transparency. The government may create an Asset Monetisation Monitoring Authority, staffed by experts.


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