Monetisation of assets through NMP is indeed a welcome move that can help achieve multiple objectives. (Representative image)
Amidst a tumultuous global economic scenario where economies have been grappling with the after-effects of the pandemic, the geopolitical situation and high inflation and monetary policy pressures, India provides a relatively bright and stable spot for investors. A near 7 percent growth in such times is no small achievement. Going forward too, India has the potential to achieve a $10 trillion GDP size by 2035-36 (market exchange terms) and to be a $25-30 trillion economy by the end of its Amrit Kaal (2047-48). To achieve this potential growth, India will need to strengthen its growth enablers. Investments in infrastructure are a clear priority in this context.
Recognising the above, the last three budgets have seen a consistent focus on stepping up investments in infrastructure. Additionally, in Budget 2021, the government announced its vision and strategy for the monetisation of government assets with the objective to spur private investment in infrastructure creation. Asset monetisation, while retaining the ownership of underlying assets with the government, helps achieve two objectives. Firstly, it helps reduce public expenditure, which would otherwise have been undertaken in maintaining an asset. Secondly, it allows the private sector to bring in efficiencies in operations and management of infrastructure.
The National Monetisation Pipeline (NMP) aims at an aggregate monetisation potential of Rs 6 trillion through core assets of the Union government, over a four-year period, from FY2022 to FY2025. The plan is to unlock the value of investments in brownfield public sector assets by tapping institutional and long-term capital through structured contractual partnerships as against privatisation or slump sale of assets. The top five sectors, by estimated value, which captured nearly 83 percent of the aggregate pipeline value are roads (27 percent) followed by railways (25 percent), power (15 percent), oil & gas pipelines (8 percent) and telecom (6 percent).
Makes Fiscal Sense
The monetisation of assets through NMP is indeed a welcome move that can help achieve multiple objectives. It helps in infrastructure creation, a priority area for the government given its multiplier effects such as generating employment, improving domestic demand, and developing the rural and semi-rural areas. At a time when the fiscal deficit is already stretched at 6.9 percent of GDP in FY22 and 6.4 percent in FY23, NMP can support fiscal consolidation by realising value from idle assets instead of incurring additional expenditures. For instance, had the asset monetisation exercise not been undertaken, the pressure on public expenditure could have increased the fiscal deficit from 6.7 percent to 7.1 percent of GDP in FY22.
NMP also allows an opportunity for debt reduction and improved performance of assets for various ministries. It can help attract higher foreign institutional investments in the country through vehicles such as infrastructure investment trusts (InvITs), which have gained popularity as a preferred infrastructure financing route.
The asset monetisation goal of Rs 880 billion for FY22 was surpassed by about Rs 81 billion, helped primarily by road, power, coal and mining assets. Media reports indicate that the Ministry of Road, Transport and Highways achieved monetisation worth Rs 230 billion, while the Ministry of Coal generated Rs 400 billion. The power ministry could achieve only Rs 95 billion of monetisation.
Soaring Ambition
Buoyed by the success in the first year, the government set an ambitious target of over Rs 1.62 trillion for FY23. The transactions undertaken/proposed include highway Toll-Operate-Transfer (TOT) bundles and InvITs futures, redevelopment of sports stadia, operational power generation & transmission assets, lease of airports and port trusts through PPP, development of silos and warehouses, and monetization of tower assets and mining assets. Media reports indicate that for the current fiscal, transactions of only Rs 334 billion have been completed under the NMP by December 2022, with a total of Rs 1.24 trillion expected to be achieved by end of this fiscal, leaving a shortfall of about Rs 382 billion against the target. Despite this expected shortfall, Rs 1.2 trillion, if achieved, would be a growth of nearly 22 percent in year-on-year monetisation. The robust, higher-than-budgeted tax collection in FY23 would cushion the fiscal impact of the NMP shortfall.
The NMP scheme is yet to realise its full potential as certain ministries still face challenges in implementing the monetisation plan. For instance, the Ministry of Railways and Department of Telecom have been unable to monetise assets in comparison to the given targets, either due to inadequate technical expertise or track record required of the private entities or lack of a successful commercial monetisation model which would work for their assets. In addition, the industry cites the lack of a clear sector-specific roadmap for monetisation as a major roadblock in the process. Also, the government’s emphasis on the need to accord due priority to NMP and nudging PSUs to focus on this agenda more actively may provide the much-needed impetus for this initiative. Lastly, the industry believes that building trust in public-private partnerships (PPP) through better enforcement of contracts and improved transparency will encourage the private sector to participate more actively in the monetisation process.
Way Forward
To overcome such issues, the government could create a central body that could monitor the progress of monetisation of assets across industries, while also assisting various line ministries and departments in identifying and addressing hurdles in undertaking the process of monetisation. Reportedly, the government may explore linking budgetary support to states’ infrastructure ministries with the performance of their asset monetisation.
The last two years have been very uncertain for both the government and the industry. Hopefully, the global challenges will somewhat ease in the next couple of years. This may enable the government to bring a renewed focus on the timely and efficient implementation of NMP. As the industry is already receptive to this scheme, monitoring the progress and providing support wherever there are regulatory roadblocks should considerably help to realize its full potential.
(With inputs from Shambhavi Sharan)
Pranav Sayta is Partner and Leader, International Tax & Transaction Services Leader, Shalini Mathur is Director, Tax and Economic Policy Group and Shambhavi Sharan is a senior professional in Tax and Economic Policy Group of EY India. Views are personal and do not represent the stand of this publication.
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