From Demonetisation To Monetisation

The Finance Minister recently announced a National Monetisation Pipeline, based on recommendations of the Niti Aayog.

It was in her 2021 budget speech that the Finance Minister announced that a National Monetisation Pipeline (NMP) would be launched to monetise the operating public infrastructure, to finance the construction of new infrastructure. The declared purpose was to raise funds for the build up of much needed infrastructure in India, at a time when the government’s finances are very fragile. A wide and diverse range of government owned assets were proposed to be put on the block by the FM.

The Finance Minister recently announced a National Monetisation Pipeline, based on recommendations of the Niti Aayog. She said that asset monetisation will lead to value unlocking. Ownership of the assets will remain with the government and there will be a mandatory handback. She further mentioned that there won’t be any land sale. The NMP is talking about brownfield assets, where investment has already been made, which are either languishing, or are not fully monetised, or are remaining under utilised. So by bringing in private participation, she said, you can monetise it better and with whatever resource you are getting, you can put it into further infrastructure creation. The vice chairman of Niti Ayog, while reiterating what the FM said, says that monetisation of government assets is not a fire sale. He says that the government is not ceding ownership of the assets and at the end of the transaction life, these assets will be handed over to the government, for further utilisation.

The government hopes to raise Rs. 6 lakh cr, through the NMP, over a period of 4 years, of which Rs. 88000 cr. are expected to be raised during the current financial year. The assets being monetised are very diverse and include roads, railway stations, passenger trains, oil/gas pipilines, power plants, transmission towers, transmission lines, fibre optic network, warehouses, airports, guest houses of PSUs and even sports stadiums. The list of assets on the block is huge, which explains the government’s estimate to raise Rs. 6 lakh cr. Any sale of a government asset is fraught with fractious/bitter politics and so the minister and her babus have clarified at the very outset that the NMP is not a sale of governments assets. The government says that it will not part with the ownership of the assets, but will part with their user rights, for a limited period, under a lease or PPP model, after which the asset will be handed over to the government. Further, the funds raised will be ploughed back into creating new greenfield infrastructure and the hope therefore is that the monetisation will trigger a virtuous investment cycle i.e. monetise existing/brownfield government assets, invest those funds into greenfield new infrastructure, which later can be monetised to raise further funds for infrastructure investment and the cycle would continue with one investment feeding into another.

Since privatisation and disinvestment of government undertakings has been a failure, so the apparent government thinking is that if you cannot sell PSUs or if there are no takers for them, then lets raise funds against the assets of the PSUs. If sale of an asset is not easy, then let it be leased out at least, retaining its ownership with the government itself. So while the government has not given up or abandoned its original agenda of disinvestment/privatisation, the focus and priority has certainly shifted to asset monetisation, as is evident from its ambitious fund raising plans announced by the FM.

The NMP plan on the surface looks prudent, after all the government has had a pathetic track record of being in the business of business and if we consider the entire portfolio of investment in PSUs, then it has been a net destroyer of public wealth, with a negative return on investment. Not that the private sector is a shining paragon to emulate, but if the government chooses the right corporates to partner it in its monetisation plan, then it would be a much better option to manage India’s public wealth, than letting the government manage and bankrupt it, as we see in the case of PSBs. The issues that are likely to emerge out of this monetisation plan of the government are many and let us discuss those :-

1. Despite its brute majority in the Parliament, the government is likely to face fierce political opposition to its monetisation plan. Government assets tend to be a politically emotive issue across all parties, who are bound to oppose it tooth and nail. The fact that the present government does not generally reach out and take everyone along will only make the divide deeper and bitter.
2. The monetisation plan confirms the fact that the government has been bad at managing public wealth and must thus handover that responsibility to some others.
3. A successful monetisation of government assets will open up a new line of fund raising for the government and could usher in a new mindset and system, where the government builds infrastructure, leases it out to raise funds, which are then recycled into further infrastructure and the investment cycle goes on this way. It sounds too good to be true.
4. If the government manages to raise such funds and put it back into capex and not into meeting revenue expenditure, then it will be a big reform that will lead to fiscal consolidation in India.
5. While the momentisation plan needs to be time bound, it is unlikely to be so, if you go by the government track record in disinvestment and privatisation of PSUs. The challenges to monetisation of government assets are too many and they include :-

1. Any private party that is expected to invest and then exploit a government asset,w ill need to borrow money from banks against it, without which the project/investment will not take off. Will the government mortgage its assets to permit private parties to raise loans for the project, is a big question that needs to be answered?.
2. Government asset monetisation comes with the baggage trade union opposition, contingent liabilities, existing mortgages to lenders, defects in title of the asset etc. These will hinder the government’s monetisation plan.
3. PSU assets are often charged in favour of lenders, who may not permit their lease out, till their dues are cleared.
4. If the financial terms, which include valuation, pricing, curbs on user charges, minimum ROI etc. are not attractive and do not give an attractive return, then investors will not be interested in government assets.
5. Any possibility of government interference will not be acceptable to the private investors at all. The biggest risk factor in India is the government itself and it will have to be kept away, to get an investor in.
6. And in case the monetisation of assets turns out to be one of profiteering by the system nories, then it will certainly be a huge disaster for the nation.
7. Since the model on which basis the government proposes to monetise is not known, whether it be TOT, OMT, dry lease, wet lease, PPP, SPV, Invit, REIT etc., it is too early to comment whether the monetisation plan of the government will succeed, or it will go the Air India way.

The PPP based monetisation plan is not some new idea, as the government may want us to believe. The actual picture however is that the government’s monetisation target is too ambitious and daunting and going by its pathetic track record in disinvestment, it will not achieve its fund raising targets under the NMP. The real challenge is that of convincing the private investor that the government will not interfere and coming up with valuation and terms of offer that reflect the ground reality. Whether demonetisation or now monetisation, the key issue is the same i.e. do not ignore the ground reality and in fixing a target of Rs. 6 lakh cr. in 4 years, the government has done that again.