In a country where infrastructure investment by the government has been the biggest challenge even during stable economic times, the National Monetisation Pipeline (NMP) is definitely well-intentioned in terms of its end objective: to enable “Infrastructure Creation through Monetisation”, where the public and private sector are seen to collaborate, “with each excelling in their core areas of competence, so as to deliver socio-economic growth and quality of life to the country’s citizens”.
A comprehensive review of the asset monetisation plan suggests that the idea itself is meritorious. In a pandemic situation where the government wishes to foster growth, infrastructure investment holds the key. However, the share of capital expenditure in the overall government spending even in the pre-pandemic year FY 2019 was only 12.3%. This share has been budgeted at 15.91% for FY 2022. However, with limits to raising taxes and other receipts, and the need for maintaining the fisc under control, while the government concentrates on providing the much-needed support to sectors most hit by the pandemic-induced economic crisis, getting newer streams of receipts becomes critical.
And this is where the government has used a so-called ‘reimaginative approach’ to its erstwhile attempts at privatisation as a means of raising finance for funding such investment. With the government retaining ownership over such assets, there is substantial risk mitigation for the private sector, which is no longer constrained by having to invest in long-term capital-intensive assets. Monetisation then appears to be superior to privatisation, more so since the government’s disinvestment efforts in the past have hardly yielded the desired positive results. There is also some evidence that such an approach of monetisation has worked in the case of certain assets such as toll roads, transmission towers and the power sector.
The asset monetisation envisaged seeks to move away from an earlier focus on greenfield investments—which have seen little private sector appetite in the past—towards brownfield investments. The Public-Private partnership envisaged in such brownfield investments would benefit from the efficiencies brought in by the private sector. The NMP envisages monetisation of core assets of 13 sectors held by the Central government, with an estimated value of `6 lakh crore over the period FY 2022-2025.
The moot question is over the quantum of support that the monetisation is likely to provide, the clarity in terms of its scope and most importantly, its implementation.
Such monetisation, however well-intentioned, is a drop in the ocean. It is expected to finance no more than 5-6% of the capex (of `111 lakh crore) under the National Infrastructure Pipeline over the period. More importantly, 13 sectors, each with multiple assets, are sought to be monetised over the next four years—when the government has been missing its disinvestment targets year on year, even when it involves blue chip companies like BPCL.
A greater problem is the lack of clear thinking on some of the deeper issues that may arise as a result of such monetisation. This would get completed over the period 2022-2025, giving private players the rights to monetise these assets over long periods of time—25-50 and even 60 years. Take the case of monetisation of hill /mountain railways sought to be done through the Operate, Maintain and Develop (OMD) based PPP model for a period of 30-50 years, which itself may be extended. While the concessionaire is required to maintain the heritage nature of project assets, they would not just get the right to earn fare and non-fare revenues for 30-50 years through train operations but would also be allowed to charge user charges and sub-lease rights on the station and adjoining real estate on railway land for 30-50 years. This has the potential to jeopardise the rights of the locals living in these areas and cause protests. For instance, despite toll booths being one of the more successful government methods of monetisation, toll collections haven’t been glitch-free as has been witnessed in various parts of the country earlier as well. The youth protests against an attempt to collect toll on the Kollam bypass in recent months is a case in point, with the protesters demanding, among other things, that people living in nearby areas be exempted.
There is a larger question of where within the budget will such proceeds from monetisation be accounted for, and how these proceeds will be spent. Would they, for instance, be part of the government’s capital receipts? The NMP document does speak about these proceeds being used to finance further infrastructure. “The addition of new/greenfield assets using the funds so raised continues to ensure a significant share of public sector entities in such sectors.” There are no specific guidelines/rules, however, on how these proceeds could be used. Could they be used (more importantly not used) for paying salaries, giving pensions and subsidies, etc., thereby incurring revenue expenditure? There is little clarity on the same.
The big miss, however, is the little attention paid to the issue of how the NMP would be implemented, and a clear scenario planning based on the government’s experience in disinvestment. The 101-page Volume II document with only one page devoted to an Implementation Plan, in a nutshell, may be the biggest challenge of the NMP.
The monetisation of brown-field assets will need to address the vexatious issues of conceptual and operational clarity, besides a clear roadmap of implementation with scenario planning in place.
(Views are personal)
Tulsi Jayakumar, Professor, Economics at Bhavan’s SP Jain Institute of Management & Research (SPJIMR) (tulsi.jayakumar@spjimr.org)