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Writer's pictureShashank Shekhar

A Push for Asset Monetisation

In the recent backdrop of events, GoI announced its decision to follow through on the Budget's plan to monetize public assets to fund fresh capital expenditure on infrastructure, the government released a list of projects and facilities to be offered to private investors over the next four years through structured leasing and securitization transactions.



What is the National Monetisation Pipeline?


The National Monetisation Pipeline, or the NMP names a list of public assets that will be leased to private investors. Here, only the brownfield assets, the ones that are already operational are planned to be leased out under the NMP. An important point to notice is that assets that are yet to be developed will not be leased out. Further, there won't be any transfer of ownership from the government to the private investor. The government only plans to cede control over the asset for a certain period of time.

 

The connection between NMP and the economy


The reason for the implementation of NMP is that the government believes that it would be able to free the capital that is "stuck" in such assets, stating it would take the government decades to recover its investment through the annual toll revenues, whereas leasing those assets to the private sector, the government can use the money to build fresh infrastructure under the National Infrastructure Pipeline(NIP).


In fact, the process from NMP is expected to account for around 14% of the total outlay for the NIP. The government believes that this will boost economic activities. Some analysts too believe that the government, through the NMP, has found the correct model for infrastructure development, stating it as the best suited to tackle ground-level challenges in building infrastructure.

 

The risks involved


The implementation of NMP is not going to be an easy task as there are a lot of critics who are skeptical about the initiative. The allocation of assets is often subject to political influence, highlighting the factor of favoritism, which can lead to issues like corruption.


The expected boost to economic activities also needs to be weighed against the cost of opportunity. For one, the money that the government collects will come from the pockets of the private investors, thus, higher government spending will come at the cost of lower private investing. The NMP also does not address structural problems like the absence of a deep bond market that holds back private investment in infrastructure.


However, it is worth noting that assets are perceived to be better managed and allocated by the private sector as compared to the government. To extent that the NMP frees assets from government controls, it can help the economy. There are also concerns that leasing out of airports, roads, railways, and other public utilities could mean a higher price for the consumers.

 

What lies ahead?

The success of NMP will depend on the demand for brownfield government assets among private investors. There's no denying that the government needs to focus on building infrastructure, not just to make sure the country develops, but also to build a counter-hegemony to its neighbor whose ambitions related to infrastructure projects are very aspiring and often termed as the debt-trap diplomacy. Thus, the government needs to strike the balance to ensure the NMP turns out to be the way they expect it to be, as without taking proper steps to foster greater competition, it can lead to poor outcomes for consumers.

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