Thursday Brief

For the last 3 days, all of you must be reading in the media about the govt’s decision to demonetise the assets.

Now what is Asset Demonetisation:

Asset Monetisation involves creation of new sources of revenue by unlocking of value of unutilised or underutilised public assets. Internationally, it is recognised that public assets are a significant resource for all economies. Monetizing these assets that Govt’s control, including  Public corporations, is widely held to be a very important but inadequately explored public utility.

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 govt has invested in them. The objective of the asset monetisation programme of the govt is to unlock the value of investment made in public assets which have not yielded appropriate or potential returns so far, create unexplored sources of income for the company and its shareholders, and contribute to a more accurate estimation of public assets which would help in the better financial management of government/public resources over time.

The National Monetisation Pipeline (NMP) through which the govt aims to raise $ 81 billion by leasing out state-owned infrastructure assets during the next four years. This will help fund new capital expenditure without pressurising govt finances. The proposal involves handing assets including railways, airports, sports stadiums, power transmission lines and gas pipelines to private operators.

The framework for monetisation of core assets has these important points- Monetisation of rights, not ownership(this means the assets will have to be handed back at the end of transaction life).

As per govt sources, this will create employment opportunities, thereby enabling high economic growth and integrating the rural and semi-urban areas for overall public welfare. This is a strategic divestment policy of the present govt, under which the govt will retain a presence in only a few identified areas with the rest tapping the private sector.

The govt will raise Rs 88,000 Cr this year by leasing infrastructure assets of central ministries and state-run companies under Rs 6 trillion NMP, which will help to boost economic growth. Annual targets under the four-year pipeline have been set at Rs 1.62 trillion for FY 23, Rs 1.79 for FY 24 and Rs  1.79 trillion in FY 25.

The top five sectors by value under govt’s asset monetisation programmes are roads (27%), railways(25%), power (15%), oil and gas pipelines (8%) and telecom (6%).

The govt plans to lease 26,700 km of roads, 90 passenger trains, 400 railway stations.28,600 km transmission lines, 286,000 km of Bharatnet fibre network and 14,900 towers owned by state-run BSNL and MTNL. Other core infrastructure assets that will be leased under NMP will be airports in smaller cities, dedicated freight corridor assets, warehousing etc.

As per finance ministry sources, the monetization pipeline will be co-terminus with the Rs100 trillion national infrastructure pipeline from this year. There won’t be any land sale happening under it. The NMP is talking about brownfield assets where investment has already been made, which are either languishing, not fully monetised or remaining underutilised. So, by bringing in private participation, you are going to monetise it better, and with whatever resource you are getting, you can put it into further infrastructure creation. The asset monetisation programme does not mean ceding the ownership of these assets.

If executed properly, NMP can be one of the biggest and boldest reforms initiated in the infrastructure sector for a long time.

The above is in nutshell the NMP in the simple language, I will not like to go into further economic/financial details of the process.

Already the main opposition party Congress has started expressing their doubts about NMP, but they forget that the talk of monetisation started during UPA 1 & 2. They could not take this forward because of the internal politics between the constituents of UPA.

Only time will tell whether MNP will succeed or not. Let us wait and watch.

Waiting for your views/comments.

Anil Malik

Mumbai, India

26^th August 2021.v