The Modi government, earlier this week, announced an asset monetisation plan, whereby infrastructure assets worth Rs 6 lakh crore across rail, road and power sectors will be monetised over the next four years via the National Monetisation Pipeline (NMP).
The NMP is in line with Prime Minister Narendra Modi’s strategic divestment policy, under which the government will retain a presence in only a few identified sectors in line with “Minimum government, Maximum governance”. Asset monetisation will unlock resources, lead to value unlocking in the case of underutilised brownfield assets which have been languishing for decades, and will also create productivity gains in the concerned sector. Monetisation literally means, to convert something into money. In practice, this means turning things into revenue-generating activities, services, or assets. The objective of the asset monetisation programme, therefore, is to unlock the value of investment made in public assets which have not yielded appropriate or potential returns so far, create hitherto unexplored sources of income for the company and its shareholders, and to contribute to a more accurate estimation of the fair value of public assets, which would help in the better financial management of public resources over time.
Unwanted rumours have been flying thick and fast aided by the Congress propaganda machinery, which claims that the Modi government’s asset monetisation exercise is akin to selling India’s crown jewels— which is a bunch of vicious lies. The Central government will only lease out brownfield assets to private entities for a specified period, post which the assets will be duly handed back to the government. But to expect Rahul Gandhi, the Congress scion, to know the stark difference between monetisation and privatisation, would be expecting too much from this compulsive liar. Also, land will not be monetised under National Monetisation Plan (NMP). It is important to execute NMP to boost Infra growth, which requires long-term capital that banks are normally not keen on, due to interest rate risk and credit risk.
Infrastructure spending is the key focus for any public expenditure program and public expenditure is the key to boosting growth, especially in the post-pandemic era, which has disrupted the private sector.
Ownership of the monetised assets will remain with the government, and since
the government is not selling the assets, but only leasing them to generate cash flows, necessary to fund the India growth story, this bold and timely move by the Modi government, should be applauded by all stakeholders. Monetising assets is widely held to be a very important but inadequately explored public finance option for managing public resources globally too.
Manufacturing would contribute to about 25% of GDP by 2022-23, driven by Infra spending, which in turn implies that we should monetise underutilised assets to unlock value. The Union Budget 2021-22, had already laid a lot of emphasis on asset monetisation as a means to raise innovative and alternative financing mechanism for infrastructure as India is a capital-scarce country. Hence, NMP is a part of the larger budgetary objectives and a strategy for the augmentation, creation, and maintenance of infrastructure. The scheme, among other things, incentivises State governments to recycle State government-owned assets, for fast-tracking greenfield infrastructure.NMP, is hence, a critical step towards making India’s Infrastructure truly affordable and world-class, by involving private participation, without giving up government control.
Given resource scarcity and the unwillingness of banks to lend to infrastructure projects that at times may take even more than 10 years for completion, the asset monetisation plan of the Modi government, via the NMP, is a practical move that will not burden balance sheets of banks who are already, in any case, dealing with legacy problems inflicted by past, inept and corruptCongress led regimes.
In 2002, when the Atal Bihari Vajpayee government decided to unshackle Maruti from government control, almost everyone criticised the move. In 2002, Maruti was valued only at Rs 4339 crore.Today,however, Maruti Suzuki Ltd is valued at well over a massive Rs 2 lakh crore in terms of market capitalisation, employing almost 16000 people and selling over four cars every minute in India. Hence, those from Congress crying hoarse about the Modi government’s monetisation plan, have lost the plot, because asset monetisation is nowhere close to privatisation and is in fact, a far more conservative approach at shoring up public finances and unlocking value.
Asset monetisation, based on the philosophy of ‘Creation through Monetisation’, is necessary for creating employment opportunities, thereby enabling high economic growth and seamlessly integrating the rural and semi-urban areas, for overall public welfare. The strategic objective of unlocking value in brownfield public sector assets by tapping institutional and long-term patient capital will be via a structured contractual partnership as against privatization or a distress sale of assets.
The NMP aims to raise 6 lakh crore through core assets of the Central government, over four years, from FY 2022 to FY 2025.
The line ministries included under the pipeline are—Roads, Transport and Highways, Railways, Power, Pipeline and Natural Gas, Civil Aviation, Shipping Ports and Waterways, Telecommunications, Food, and Public Distribution, Mining, Coal and Housing, and Urban Affairs—along with Secretary (Department of Economic Affairs) and Secretary (Department of Investment and Public Asset Management).NMP is not just a funding mechanism, but an overall paradigm shift in infrastructure operations, considering the private sector’s limitations and ability to dynamically adapt to the evolving global and economic reality. New models like Infrastructure Investment Trusts (InvITs) and Real Estate Investment Trusts (Reits) will enable not just financial and strategic investors, but also common people to participate in this asset class, thereby opening new avenues for investment.
NMP is a culmination of insights, feedback, and experiences consolidated through multi-stakeholder consultations undertaken by NITI Aayog, Ministry of Finance, and line ministries. The pipeline has been deliberated at length in the inter-ministerial meeting, chaired by Cabinet Secretary. This is, therefore, a holistic initiative of the Modi government, based on painstaking research and deliberations. As part of a multi-layer institutional mechanism for overall implementation and monitoring of the Asset Monetization programme, an empowered Core Group of Secretaries on Asset Monetization (CGAM) under the chairmanship of Cabinet Secretary has been constituted. The Modi government is committed to making the Asset Monetisation programme a value-accretive proposition both for the public sector and private investors/developers. Further, currently, only assets of Central government line ministries and CPSEs in infrastructure sectors have been included. The process of coordination and collation of asset pipeline from States is currently ongoing and the same is envisaged to be included in due course.
The framework for monetisation of core asset monetisation has three key imperatives. This includes the selection of de-risked and brownfield assets with stable revenue generation profile, with the overall transaction structured around revenue rights. The primary ownership of the assets under these structures, hence, continues to be with the Central government, with the framework envisaging the hand back of assets to the public authority at the end of the transaction life. Real time monitoring will be undertaken through the asset monetisation dashboard, as envisaged under the Union Budget 2021-22. The end objective of this initiative is to enable ‘Infrastructure Creation through Monetisation’, wherein the public and private sector collaborate, each excelling in their core areas of competence, to deliver socio-economic growth and quality of life to the country’s citizens.
Considering that infrastructure creation is inextricably linked to monetisation, the period for NMP has been decided to be co-terminus with the balance period under the National Infrastructure Pipeline (NIP).
The aggregate asset pipeline under NMP over the four-year period, FY 2022-2025, is indicatively valued at Rs 6 lakh crore. The estimated value corresponds to 14% of the proposed outlay for the Centre under NIP (Rs 43 lakh crore). This includes more than 12 line ministries and more than 20 asset classes. The sectors included are roads, ports, airports, railways, warehousing, gas and product pipeline, power generation and transmission, mining, telecom, stadium, hospitality, and housing.
The top 5 sectors (by estimated value) capture 83% of the aggregate pipeline value. These top 5 sectors include: Roads (27%) followed by Railways (25%), Power (15%), oil & gas pipelines (8%) and Telecom (6%).In terms of annual phasing by value, 15% of assets with an indicative value of Rs 0.88 lakh crore are envisaged to be rolled out in the current financial year (FY 2021-22).
National Monetisation Pipeline (NMP) will also hasten the process of Infrastructure spending under the National Infrastructure Pipeline (NIP). Infra projects worth Rs 44 lakh crore are under implementation via the NIP currently, of the overall Rs 111 lakh crore to be spent by 2024-25, accounting for 40% of the projects under implementation. Rs 22 lakh crore worth of projects that account for NIP’s 20%, are under development stages. The framework of NIP includes 39% investment by the Central government, 40% investment by States, and 21% by the private sector.
Under the NIP, investments worth Rs 25 lakh crore are envisaged in the energy sector, Rs 16 lakh crore is envisaged in irrigation, rural agriculture, and food processing, 20 lakh crore is envisaged in the highways sector, Rs 16 lakh crore each in mobility and railways and an investment of Rs 14 lakh crore is envisaged to be spent on digital infra among others. The highways sector has huge potential and in five years, the toll income was slated to reach an amount of Rs 1 lakh crore from Rs 34,000 crore presently. The Modi government has ensured minimising risk to the private sector through various policy initiatives as well as introduced low-risk models, such as the hybrid annuity model for the sector. For the Infra sector, a target of investments to the tune of an amount of Rs 15 lakh crore has been set for the next 2-3 years. The Delhi-Mumbai express corridor, worth Rs 1 lakh crore, spanning a distance of 1300 km is expected to be completed in the next two years; the project stands at 50% of the completion. Two more expressway projects, worth an amount of Rs 65,000 crore are being launched.
1In the final analysis, it needs to be understood that the existence of State-owned firms in the manufacturing sector, for instance, is not about profit maximisation. Very often, it is about multidimensional objectives like employing the masses, keeping prices low in specific sectors, reducing regional imbalances, and operating in areas and sectors where the private sector is unwilling or not well-suited. Hence, social objectives are often primarily the reasons why the government is present in sectors that it should not be in. In such cases, asset monetisation can play a critical role. While the government will retain ownership and control, the operation and utilisation of assets will be in the hands of the private sector but these assets will eventually be handed back to the Central government after the lease expires. In the interim, it is a win-win situation for everyone. While the government can mobilise resources without incurring huge budgetary or fiscal deficits, the private sector also earns revenues for as long as the lease period is underway.
The Central government in turn can use the revenues generated by leasing assets via asset monetisation, to give a bigger impetus to infrastructure projects. To cut to the chase, while disinvestment means the government will offload less than 50% stake in public sector undertakings to the private sector, privatisation implies that the government will offload more than 50% stake to the private sector. In sharp contrast, asset monetisation via the NMP is neither about disinvestment nor about privatisation. While privatisation involves transfer of both assets and ownership, asset monetisation only involves transfer/lease of assets for a specified period, without any transfer of government control or ownership. Hence, asset monetisation via the NMP is an excellent decision by the Modi government to mobilise resources, without a fire sale.” When the world is in crisis, we must pledge—a pledge which is bigger than the crisis itself. We must strive to make the 21st century India’s century. And the path to do that is self-reliance,” said Prime Minister Narendra Modi, in May 2020. Indeed, the NMP is one more step towards realising that pledge of world-class infrastructure and an Aatmanirbhar Bharat.
The author is an economist, national spokesperson of the BJP, and the bestselling author of ‘Truth & Dare: The Modi Dynamic’. Views expressed are writer’s personal.