National Monetization programme: Good in spirit
October 21, 2021
Government intends to monetize all the core assets through Operate Maintain and Develop (OMD) based models. The actual realization value will be determined by detailed valuation or feasibility studies at the stage of transaction structuring. — Anil Javalekar
Indian National Monetization programme is in discussion. Indian government earlier experimented with demonetization of certain currency notes. Now it has planned monetization so to convert certain core public assets into money. As is known, Government is short of money and there are limited sources. First is to minimize expenses on governance and save money. Second is to levy taxes. Third is to print money. Fourth is to raise public debts and the Fifth is to sell or rent public assets. Each has its own plus-minuses. Indian government has preferred to rent public assets in the name of monetization. Government is not like Indian poor and by default has many assets that can be rented or even sold. How this monetization will work and where it will lead is future question mark.
India needs a huge Infrastructure investment
There is no denying that India required huge investment to build the basic infrastructure and maintain it. India’s National Infrastructure Pipeline (NIP) envisages an infrastructure investment of Rs 111 lakh crore over the five-year period (FY 2020-25). The Report of Task Force for NIP (2019) estimated that traditional sources of capital ( budgetary resources, debt from bond markets, banks and NBFCs; equity from private developers, external aid multilateral and bilateral agencies and internal accruals of PSUs) may finance 83–85% of the capital expenditure and about 15-17% of the aggregate outlay may get through innovative mechanisms such as Asset Recycling & Monetisation and new long-term initiatives such as Development Finance Institution (DFI). The asset recycling and monetisation mechanism may finance around 5-6% of the aggregate capex under NIP. Therefore, the Union Budget 2021-22 talked about the policy of “monetising operating public infrastructure assets for new infrastructure construction” and provided for preparing a “National Monetisation Pipeline (NMP)” of potential brownfield infrastructure assets.
What Government intends to do
Government intends to allow private sector to build the infrastructure and is ready to rent public assets for the purpose. The private sector is expected to do things what government has planned and earn profit on its operations as also pay some share to government. This monetisation will help raise 5-6% of the aggregate capex funds and the total indicative value of NMP for Core Assets of Central Government has been estimated at Rs 6.0 lakh crore over the 4-year period, FY22-25. It has listed out assets under various ministries for the purpose. It will help tap public sponsor as well as private sector/ institutional investors towards financing the infrastructure gap. Non-core assets (such as land, building, and pure play real estate assets) have not been included in this monetisation showing that government will not part its ownership rights.
How Monetisation will be done
All the core assets presently held by government will be monetised for the purpose. The assets are proposed to be monetised through Operate Maintain and Develop (OMD) based models. The estimated capex to be funded through private sector investment has been taken as indicative monetisation value. The actual monetisation value will be determined based on detailed valuation or feasibility studies at the stage of transaction structuring. It is said that the actual realization (whether by way of accruals or by way of private investment), will depend on various factors and aspects such as transaction timing, economic scenario, available capital and investor interest etc.
Infrastructure projects covered
The major infrastructure covered under this monetisation are Roads, Ports, Airports, Railway stations, Passenger trains, Private freight terminals, Railway colonies redevelopment, Track infrastructure under DFCCIL, Track, Power generation and transmission, Natural gas and other pipelines, sports stadiums, warehousing, Telcom-Bharat net fibre and towers, mining and Urban Housing redevelopment. This means every infrastructure that is to be built is available for private sector investment.
What it means
First, it means that Indian government has no resources to build the infrastructure and want private sector to build, operate and maintain it on commercial basis and generate revenue for government. Second, it means that Public at large may have to bear the cost of infrastructure directly as private sector will recover the cost and profit from the users. Third, it also means that Government is more interested in spending on welfare measures than on development and use tax money on governance and on poor if possible. Fourth, it means that, in future, Corporate and corporations will be main investors and participants in Indian economy. Fifth, it means that now onwards, services and facilities will be better but at cost. This may increase the prices and many services will not remain within the reach of commons.
Monetisation: Good In spirit
First, Government needs money to build infrastructure, run the government and help citizens to have facilities and opportunities for better life. As is seen, Indian government budgets have consistent revenue deficits showing that it has no money even to run the government. So, monetising the public assets for the purpose of development is not a bad idea. Second, the efficient Maintenance of infrastructural facilities is equally important and government is not the right one for the job. Many times, people are ready to pay for the services while using it, if the services are good and worth. Therefore, allowing private sector to maintain by charging it to user is good. It will help better utilisation of public assets. Third, by default, government is the owner of public assets and many assets remained unutilised. Some can be used to raise funds that can be used for building infrastructure. This way monetization of public assets is good in spirit.
Need a cautious approach
First, government cannot simply run away from its responsibilities towards building infrastructure. It is necessary that government take initiatives and invest through budgetary resources for the development purposes. Second, Government has implemented infrastructural projects in the past particularly immediately after independence with the borrowed funds and can still do it. True, now concessional finance is not available. The sources have, however, increased over the period as also the market funds and many institutions have come up to finance infrastructural projects. The Private sector along with government can invest in such projects without recourse to privatisation or monetization of public assets. In fact, most government works including work related to infrastructural projects are being done on contract basis and private sector is already active in the sector. Third, the history of disinvestment is not supportive to this idea as many of such attempts failed. Reason is known, unless revenue and profit is guaranteed, private sector will not come forward for such investments. With the new monetization attempt also, chances are, private sector will show interest only in profitable ventures. Fourth, the major problem will be of monetisation value of assets. Government has proposed varied approaches for valuation. However, many assets are interlinked and independent monetisation of individual assets may not be possible. There is, therefore, a possibility that few giants, including foreign, will have control over most of public assets. Fifth, the revenue expected is not known and may not be real in practice if measured with the concessions given. Sixth, this practice of sponsorship may result in double taxation as private participants will charge separately and government will not reduce its taxes or revenue source. The burden of monetisation will thus be born by Indian citizens.
Government desirably understands the consequences
The chances are that private sector may eye on the properties and assets of the government. The political governance and its ideology will change over time and current policy of non transferring ownership may not stand in future. This may result, in practice, as selling of valued public assets to private sector for their small current investment. Therefore, desirable to understand that the problem is not of money alone and not of who build the infrastructure. The building of infrastructure is the basic responsibility of government and private sector, who sees profit in everything, is not the right partner in this adventure. Moreover, renting out or selling out the good assets that built over by public money is a bad idea. Many of such assets are good and are earning on its own and not burdensome such as railways. The idea of monetisation may thus look good in spirit but may pose problem in future apart from not giving the desired results.