Investment in infrastructure is indispensable for sustainable growth in India as it makes India globally competitive, increases employment, resuscitates incomes and earnings, improves urban-rural connectivity, and empowers vulnerable sections. According to a recent Global Infrastructure Outlook Report, the global infrastructure investment needs across 50 countries, will reach $94 trillion in 2040. Hence, India must finance this colossal investment, especially because Covid-19 challenged the economy in unprecedented and formidable ways. Unfortunately, raising taxes and public debt is not viable even though the Government, acutely affected by the pandemic, needs the requisite stimulus to meet planned targets. Hence, feasible and practical alternative sources are all required to support infrastructural development. In this scenario, asset monetization is the most prudent funding solution. The recent National Monetization Pipeline (NMP) of the Modi Government is a masterstroke that is set to generate a revenue of Rs. 6 lakh crore by serving an essential roadmap for asset monetisation of various brownfield infrastructure assets across roads, railways, shipping, aviation, power, telecom, oil and gas, and warehousing sectors. The outcome of this plan will be a win-win situation for all stakeholders— a stable revenue stream for the government, no burden on the honest taxpayer, structured contractual partnerships that bring in private efficiency without diluting government ownership, and a virtuous cycle of sustained investment in infrastructure.
This form of revenue enables the government to avoid cuts in important categories of expenditure without increasing tax or public debt. Asset monetization will lead to asset recycling and will enable the government to fund the $1.5 trillion pipeline of new infrastructure investments through proceeds from the lease of mature public assets to the private sector. The NMP is a serious attempt to finding a solution to the capex funding gap and harvest the full potential of the existing assets even if that means the reduced presence of the government in some sectors. Here comes the role of the efficiency and effectiveness of the private sector which will raise the requisite resources; there will be a revival of the economy and the proceeds from the monetised assets will lead to new infrastructure creation which will generate an accelerator and multiplier effect for future asset regeneration. Thus, the NMP will allow the government to target efficiency gains, competition, improved performance monitoring and will help free capital that is stuck in these assets. The Kelkar Committee had observed “…while the government has a major role in building infrastructure, should it maintain and operate roads or power stations? No, not at all. Once the commanding heights have been built, they can be sold to private entities for routine operation.” This would, said the committee “…start a virtuous cycle of fresh investment fed by additional revenues.” The Government has done better than this. It is not selling but only but leasing the assets. Unlocking the revenue potential from underutilised, unproductive, or unutilised assets as well as from operational assets is pivotal to future investment. The NMP will create a pool of investors by helping the government to identify investors who need a sustained and robust asset pipeline. In fact, the Union Finance Minister has budgeted for a 26% increase in capital spending by the Centre in FY22, hoping that its multiplier effect and the resulting job creation will bring the gross domestic product (GDP) close to an 11% growth rate. Through this monetization plan, in addition to jobs increasing in the assets being monetised, an entire new set of jobs will be created when the government reinvests its revenue proceeds leading to increased income, increased aggregate demand and further increased business activity. In fact, for the public sector, NMP offers a unique opportunity to receive upfront capital from the private sector in lieu of a future income stream from those assets.
It is also important to address some reservations. The first doubt: will public assets go down to zero? The fact is that the Government will continue to own the assets which will only be leased to private partners on terms that more than safeguard public interest. The second issue is that while the plan sounds great, is it even executable? The answer is Yes! The government has permitted innovative instruments in the monetisation of assets like Infrastructure Investment Trusts and Real Estate Investment Trusts, which, like mutual funds, and pool investments, will flow to infrastructure and encourage people and financial investors to invest in our national assets. Thirdly, should we fear the growth of monpolies? We have in place the Competition Commission of India, sector specific regulators, and the consumer courts, which will come down heavily on any anti-competitive practice. Fourthly, is the process transparent? The NMP is aimed at creating a systematic and transparent mechanism for public authorities to monitor the initiative and for investors to plan their future activities. Not only will the selection of private partners be through a transparent mechanism, but the utilization, too, will go towards well-defined uses. Lastly, where are the investors? This plan will succeed since it comprises of only brownfield assets that have been “de-risked” and the NITI Aayog’s discussions with key global investors have revealed that they are keen to participate in projects to be monetised. Finally, for those who ask “Is the journey possible?” Well, as they say, the only impossible journey is the one you never begin.
If India has to grow on a sustained basis over the next decades, it has to grow on the base of sound infrastructure. With Covid-19 taking an unprecedented toll on economic activity, a significantly enhanced level of infrastructure investment is required to revive growth. Given the significant size of financing gap for infrastructure, all funding solutions must be considered. The Modi Government must be applauded for finding the right model for infrastructure development and kickstarting growth, without increasing taxes or debt and boosting an economy threatened by the coronavirus pandemic.
The author is a former Chairman of, Haryana Public Service Commission. Views expressed are personal.
With Covid-19 taking an unprecedented toll on economic activity, a significantly enhanced level of infrastructure investment is required to revive growth. Given the significant size of financing gap for infrastructure, all funding solutions must be considered. The Modi Government must be applauded for finding the right model for infrastructure development and kickstarting growth, without increasing taxes or debt and boosting an economy threatened by the coronavirus pandemic.
