The government of India had launched the National Monetisation Pipeline (NMP) in August 2021. Read here to know more about NMP.
Government of India needs revenue to fund various initiatives. From where does the revenue come from? Can there be new sources other than tax revenue?
Yes, there are certain assets of Indian Government which can be montized. For example, Public Sector Enterprises like LIC.
The National Monetisation Pipeline (NMP) estimates an aggregate monetization potential of Rs 6 lakh crores through core assets of the Central Government, over a period of four years from FY 2022 to FY 2025.
What is National Monetisation Pipeline (NMP)?
NITI Aayog has developed the pipeline, in consultation with infrastructure line ministries, based on the mandate for ‘Asset Monetisation’ under Union Budget 2021-22.
It aims to unlock value in brownfield projects by engaging the private sector.
The revenue rights will be transferred to them but not ownership in the projects. The funds generated will be used for infrastructure creation across the country.
NMP as a part of Divestment Policy
The plan is in line with Prime Minister’s strategic divestment policy, under which the government will retain a presence in only a few identified areas with the rest tapping the private sector.
The National Monetisation Pipeline is announced to provide a clear framework for monetisation and give potential investors a ready list of assets to generate investor interest.
Union Budget 2021-22 has identified the monetisation of operating public infrastructure assets as a key means for sustainable infrastructure financing.
As of now, only assets of central government ministries and Central Public sector enterprises (CPSEs) in infrastructure sectors have been included.
Roads, railways, and power sector assets will comprise over 66% of the total estimated value of the assets to be monetized.
The sectors including telecom, mining, aviation, ports, natural gas, and petroleum product pipelines, warehouses, and stadiums will cover the remaining 44% estimated value.
NMP vs NIP
The NMP will complement the Rs 100 lakh crore National Infrastructure pipeline (NIP) announced in December 2019.
- NIP will uplift the infrastructure projects by creating jobs, improving ease of living, and providing equitable access to infrastructure for all, making growth more inclusive.
- NIP includes economic and social infrastructure projects.
Note: The Gati Shakti scheme will subsume the National Infrastructure Pipeline that was launched in 2019.
What is Monetisation?
In a monetisation transaction, the government is basically transferring revenue rights to private parties for a specified transaction period in return for upfront money, a revenue share, and commitment of investments in the assets.
Real estate investment trusts (REITs) and Infrastructure investment trusts (Invits), for instance, are the key structures used to monetize assets in the roads and power sectors.
These are also listed on stock exchanges, providing investors liquidity through secondary markets as well.
While these are structured financing vehicles, other monetisation models on Public-Private Partnership (PPP) basis include:
- Operate Maintain Transfer (OMT)
- Toll Operate Transfer (TOT)
- Operations, Maintenance & Development (OMD)
It refers to investment in a manufacturing, office, or other physical company-related structure or group of structures in an area where no previous facilities exist.
The projects which are modified or upgraded are called brownfield projects. The term is used for purchasing or leasing existing production facilities to launch a new production activity.
Challenges for implementing National Monetisation Pipeline
- Deficiency of identified revenue-generating ways in various assets, hence investment in them may end up in losses.
- The slow pace of privatization in government companies including Air India and BPCL.
- The recently launched PPP initiative in railways indicates a lack of private investors’ interest.
- Capacity utilization in gas and petroleum pipeline networks is not up to the mark and has a lot of untapped potentials.
- Power sector assets come with regulated tariffs making them less viable for private players.
- National highways below four lanes do not attract investors.
- Many assets like railways have multiple stakeholders, including state governments, which own a stake in the entity.
The National Monetisation Pipeline framework on paper looks very promising, but the government should ensure proper execution to derive desired outcomes.
There is a need for an efficient dispute resolution mechanism, which is one of the key aspects of such a wide-ranged plan.
The success of the infrastructure expansion plan would depend on other stakeholders playing their due role; hence all the strata should be duly considered and be given opportunities.
The State governments and their public sector enterprises and the private sectors should be able to work together through healthy competition.
A high-Powered Intergovernmental Group can be set up as recommended in the 15th finance commission to re-examine the fiscal responsibility legislation of the Centre and States.