A new road map

Execution key to making asset monetisation pipeline work

Union Finance Minister Nirmala Sitharaman announced on Monday the National Monetisation Pipeline, which listed out which of the publicly-owned infrastructure assets will be leased to the private sector. The scheme as announced had several key restrictions. First, the ownership of the assets will remain with the government, and after a pre-set lease period they will have to be handed back to the state. Second, only existing brownfield assets are part of the monetisation pipeline. The claim is that Rs 6 trillion worth of infrastructure assets are to be monetised in the next four years — although it is an open question as to whether this sum reflects the actual worth of the assets. That will be known, after all, once a market price has been discovered for most of them. The Union government, however, has done well to create an incentive structure for state governments, in that it will top up a state’s proceeds from monetising an asset by an additional 33 per cent from the Union’s coffers.

Government officials have been at pains to argue that this asset monetisation is not about generating revenue alone, but also about the efficient management and stewardship of public infrastructure. If true, this is the right way to think about it. The notion that these assets are not sold but leased might encourage governments to treat them as revenue rather than as capital inflows that should be spent on a corresponding capital build-up by the public sector. The original plan for asset monetisation was that it would allow for value in existing public assets to be unlocked, freeing the government to raise its own capital expenditure at a time when private infrastructure investment was low. This must remain the goal.
 

At least one senior official has given an explicit target for 2021-22 in terms of funds raised from monetising public assets: Rs 88,000 crore. This is a significant figure, but it raises its own set of questions. For example, given the issues that have arisen in the past about the valuation of individual assets — and, often, their links to land prices — it is not clear what mechanism will be transparent, remunerative, and attractive to the private sector. Given that outright sales are not on the agenda, some have worried that this is the revival of “public-private partnerships” through the backdoor, and they have been discredited by events over the past decade. In addition, it is an unfortunate fact that the government’s track record on disinvestment has not been very good, given that it has consistently missed the targets set in successive annual Budgets. Why would this be any different? The same temptation to wait for the perfect market, and fear of backlash in the case of low valuations, exist in the case of asset monetisation as for disinvestment.

Certainly, if these problems are ironed out, the scheme has potential. That there is considerable interest from the private sector in public sector infrastructure assets is clear from the success of the infrastructure investment trust associated with the Power Grid Corporation. The National Highways Authority of India is also set to launch its Rs 5,100 crore InvIT next month. Structuring the offer properly, and executing it with decision, are essential.