India’s National Infrastructure Pipeline (NIP) envisions a Rs 111 lakh crore for a period of 5 years (2020-25). Following COVID-19, an innovative solution was required to finance infrastructure expenditures on such a large scale. The Union Budget 2021-22 established a three-pronged plan to keep investments under the NIP on track. The government has prepared the way to develop a National Monetization Pipeline (NMP) of potential brownfield infrastructure assets to offer a medium-term roadmap for monetization and give potential investors a ready list of assets to generate investment.
Asset monetization entails transferring unutilized or underutilized public assets to a private sector organization for a limited time to free up idle capital and reinvest it in other assets or projects that would provide enhanced and additional benefits. This approach aims to produce job opportunities and meet the population’s ever-increasing demands for higher-quality public assets and services. The plan aims to draw into private-sector money, efficiency, and desire for investment to release the value of investments stuck in underutilized but fully completed public sector assets. It should be noted that this does not imply ownership transfer. A structured contractual partnership, on the other hand, entails the owner receiving the asset at the conclusion of the transaction period.
Why do we need Asset monetization?
It is critical to implement NMP in order to enhance infrastructure growth, which necessitates long-term capital that banks are typically unwilling to finance. It should be highlighted that long-term concessions of essential operating assets, which provide upfront revenues that can be invested in other infrastructure projects, have only happened on rare occasions or in specialized sectors. For Central Public Sector Enterprises (CPSEs), the fixed asset turnover ratio has been declining.
Although the current administration has accomplished monetization through disinvestment and privatization in numerous areas, mere monetization is not always regarded sufficient—fear of squandering funds or their inappropriate distribution may dominate. These anxieties will be allayed by a defined asset recycling strategy that will accompany the NMP. Thus, NMP is a government endeavor to strategize the asset monetization of brownfield public sector assets by harnessing institutional and long-term capital, which can then be leveraged for additional public investments.
For the purposes of monetization, assets that are important to an entity’s business objectives and are utilized to supply infrastructure services to the public or customers are considered core assets. Aside from traditional infrastructure sectors, assets from the mining and housing redevelopment sectors have been included in the NMP due to their ability to boost private sector investment.
Transportation (roads, rail, ports, and airports), electricity generation, transmission networks, and pipelines are examples of these asset classes. The NMP does not contain land, buildings, or pure-play real estate assets. Niti Aayog’s strategy identifies prospective core assets for monetization as those that are now generating revenue or can be augmented for future operations.
Sector-wise monetization pipeline over FY2022-25
The top five industries (in terms of estimated value) account for 83% of the total pipeline value. Roads (27%) are followed by railways (25%), power (15%), oil and gas pipelines (8%), and telecommunications (8%) in the top five sectors (6 percent).
The National Monetization Pipeline (NMP) will work in concert with the National Infrastructure Pipeline (NIP) to attract investment for underutilized or idle brownfield facilities, producing more value for the government and therefore benefiting India’s economy. To achieve its developmental goals, the NMP period has been kept concurrent with the remaining period of the NIP. The amount to be raised by monetization is projected to be roughly 14% of the proposed outlay for the Centre under NIP, which is Rs 43 lakh crore.