Fair play and transparency will determine success of National Monetisation Pipeline

Representative Image

Representative Image

In ordinary parlance, for an individual or a household, to ‘monetise’ something often refers to the process of earning revenues or income from a resource that may have remained idle. So, one can monetise a part of the house by letting it out and earning rental income from it.

There are also instances where people even let out car parking spaces in multi-storied apartments. This is an instance of monetising an idle parking space through rental or lease income, while retaining ownership.

One often comes across innovative monetisation examples of assets, particularly from the world of media. For instance, one would often come across advertisements before, during or after popular videos on YouTube. These are sometimes referred to as ‘pre-rolls’, ‘mid-rolls’ and ‘post-rolls’. These are examples of earning money from idle assets (in this instance time or secondages) by embedding advertisements in the videos.

From a public policy standpoint, asset monetisation involves creation of new sources of revenue by unlocking the value of previously unutilised or underutilised public assets.

Internationally, it is recognised that public assets are a significant resource for all economies. Monetising these assets that government’s control, including public corporations, is widely held to be a very important, but inadequately explored, public finance option for managing public resources.

Many public sector assets are sub-optimally utilised and could be appropriately monetised to create greater financial leverage and value for the companies, and of the equity that the government has invested in them.

The objective, in theory at least, of the government’s asset monetisation programme is to unlock the value of investment made in public assets that have not yielded appropriate or potential returns so far, creating yet unexplored sources of income for the company and its shareholders.

This would, besides yielding revenues, also contribute to a more accurate estimation of public assets which would help in better financial management of government and public resources over time.

The Bharatiya Janata Party (BJP)-led National Democratic Alliance (NDA) government’s asset monetisation plan, which seeks to generate revenues worth more than Rs 6 lakh-crore is a jumbo version of such plans.

On August 23, Finance Minister Nirmala Sitharaman announced that the government will monetise assets worth Rs 6 lakh-crore between 2021-22 and 2024-25 under the National Monetisation Pipeline (NMP) scheme. The government will still own the assets being given out under the NMP, and will be returned to the government after a period of time.

According to the NITI Aayog, the government’s premier policy think-tank, asset monetisation under this programme will involve various brownfield infrastructure assets across roads, railways, shipping, aviation, power, telecom, oil and gas, and warehousing sectors.

“Asset monetisation, based on the philosophy of ‘Creation through Monetisation’, will tap institutional investment and long-term patient capital into stable mature assets in turn generating financial resources for new infrastructure asset creation,” it said in its two-volume guidebook on the NMP.

The key phrases here are ‘institutional investment’ and ‘long-term patient capital’, something that the minister also underlined when she said that the government will not sell off any assets, but only utilise them in a better manner to generate greater value and unlock resources for economy.

On the face of it, at least in terms of theoretical intent, there aren’t too many gaps in the plan. Given the ambitious fund raise targets through the asset monetisation plan, one would be tempted to assume that the government and public sector undertakings will lean on Infrastructure Investment Trusts (InvITs) to generate revenues from these assets.

There has been a reasonably successful demonstration of the proof of concept recently. In April, State-owned PowerGrid Corp of India Ltd (PGCIL) launched the public offer of the first Infrastructure Investment Trusts (InvITs) ever by a PSU.

InvITs are collective investment vehicles akin to mutual funds that allow direct investment by individuals and institutions in infrastructure projects to earn a small portion of the income as return. InvITs, which are governed by the Securities Exchange Board of India (Sebi) enable infrastructure developers to monetise assets by pooling multiple assets under a single trust structure.

The mega asset monetisation plan, if properly structured, can enable significant fund flow from private equity players into India’s infrastructure space through InvITs.

The key aspects, however, will be the design of these InvITs. Private monopolies holding considerable sway over large swathes of infrastructure assets worth billions of dollars can result in inequitable consequences that can linger for decades. The rules of handing out these assets will necessarily have to be founded on principles of fair play and transparency as non-negotiable doctrines.