Urvee Baweja (Shaheed Sukhdev College of Business Studies, DU

URVEE BAWEJA

Shaheed Sukhdev College of Business Studies, University Of Delhi

National Monetization Pipeline and its Impact on India

Recently, the Government of India launched the National Asset Monetization Pipeline (NMP) which estimates a monetization potential of $6 trillion through key public assets over the next four years from FY2022-25. The initiative has been planned to run concurrently with the concluding four years of the National Infrastructure Pipeline (NIP). It is in line with Prime Minister Narendra Modi’s deliberate disin-

vestment strategy in which the government will maintain presence and control in a few areas while the rest will be tapped by the private sector. The pie chart below shows the sectoral proportion of NMP for the next four years. It can be seen that the top 5 sectors, accounting for around 80% of the total projected value of the assets being monetized include Roads (27%), Railways (25%), Power (15%), Oil & Gas pipelines (8%) and Telecom (6%). Mining, aviation, ports, warehouses, and stadiums are among the remaining up-and-coming industries. In terms of yearly phasing by value, this fiscal year is projected to see 15 percent of assets with an indicative value of Rs 0.88 lakh crore handed out.

Oftentimes, it has been observed that asset monetization and privatization have been perceived to be the same. However, the two terms are significantly different from each other. The permanent transfer of ownership to private persons or corporations is known as privatization. The private entity becomes in charge of all activities and subsequent management choices. Asset monetization, on the other hand, entails leasing public assets to private companies in order to generate money. However, it involves the transfer of revenue rights rather than ownership. Once the transaction life comes to an end, the assets are returned to the government. This initiative is highly welcome in a time when the economy is facing a pandemic-led economic crisis like no other. With India’s GDP sinking by 7.3% for the year 2020, primarily attributable to the pandemic, coupled with the hike in direct taxes. Owing to this, low and middle income customers reduce their expenditure, which further drags down the GDP. The large number of unutilized or underutilized public assets was also a compelling reason for the government to undertake this measure so as to ensure the efficient utilization of these resources to bolster economic

development. Additionally, with the government’s fiscal deficit nearing 9.3% of the country’s GDP and government debt at 90% of the same in the current fiscal year, the need for monetizing public assets has become critical. The situation is further highlight in the following graphs . Through the National Monetization Policy, the government aims to engage the private sector to unlock the potential in brownfield projects and use it to fund creation of infrastructure nationwide. A brownfield project is one, where development to rebuild, modify or upgrade is carried out in a now unused or underutilized resources, where work was once carried out. NMP will also help in maintaining fiscal prudence and contribute immensely in achieving the goals of $5 trillion economy and Atma Nirbhar Bharat. Moreover, the modernization of the existing public assets will assist in economic development. Despite the objectives that the NMP may achieve, there is general apprehension of certain challenges that it may encounter. Loss of jobs of the workers of state-owned industries is one of the key concerns being raised. There is also the risk of corruption or blockages by opposition over asset allocation. Some assets may be undervalued during value estimation owing to a lack of distinct or identifiable revenue streams which can result in huge losses for the nation. Since only a few private individuals will actually invest in the Public Sector Undertakings (PSUs), there is a risk of growing concentration of power in the hands of a few, especially in some of the major areas of the economy. The absence of a quick and unbiased dispute resolution body raises many concerns over the smooth functioning of the project. Another key challenge that the government may face is resistance from individuals with vested interests who are illegally occupying government land or property, often overlooked owing to strong political backing. The NMP, if implemented effectively, can play a pivotal role in transforming the economy. The PSUs that had hitherto been idle will now be put to productive use, resulting in a balanced regional growth. With respect to employment, the NMP will create opportunities for unskilled and skilled labor in maintenance of assets, asset creation, and other avenues. As a result, new career opportunities will emerge across the ecosystem. Another impact the NMP will have is the reduction in the amount of financial assistance required to enhance the capital base of the PSUs being monetized. The funds received may also be used to upgrade PSUs' technology, reducing their need for government aid and financial support. Involvement of private entities will expose the PSUs to extra resources for reinvestment, reorganization and expansion. It can

also assist public sector entities in lowering their market borrowings and interest payments. Lower interest rates will encourage private investment and enhance asset use efficiency. Since the pipeline would speed up infrastructure development and service modernization, this will lead to a multiplier effect in the economy. Economies of scale, improved asset utilisation, synergies, and the building of new infrastructure will all contribute to enhanced productivity and efficiency. The synergy premium which will be paid by the private entity will contribute to the nation’s gross savings and enable the government to support future capital expenditure without placing more burden on the economy. The year-by-year estimated values of the monetization pipeline are shown in Rs. Crore in the bar chart below. These are projected values, subject to the invest Although the NMP looks very promising on paper, the real key to the development and success of this step lies in its effective implementation. To ensure better execution of the project, the government can set up a dispute redressal mechanism to monitor and safeguard the interests of all the stakeholders including the general public. It is also crucial to conduct a sensitization campaign to demystify the pipeline for the common man and debunk any misconceptions or preconceived notions. The government should give tax benefits to attract retail investors into monetization instruments like Infrastructure Investment Trusts (InvITs), as proposed by NITI Aayog. Setting up an independent regulatory body to ensure proper accountability and transparency of the transactions will also go a long way in gaining public confidence. Thus, asset monetization, if implemented correctly, has the potential to extract unlimited value from infrastructure assets, which will not only have a large budgetary impact but will also help in the construction of world-class infrastructure in India. However, it is critical to guarantee that the revenues generated as a consequence of this effort are put to the same use for which they were intended. Subjecting all transactions under NMP to a competitive and transparent procedure is the only way through which utilities will emerge.