On the right track: Asset monetisation will boost efficiency and growth

Given fiscal constraints and the need to lower the debt-to-GDP ratio, the Union finance ministry sees reviving asset monetisation as key to sustaining growth momentum

The Union government has launched the second iteration of the National Asset Monetisation Pipeline (NMP), which has been designed by its think-tank, the NITI Aayog, in collaboration with several line ministries with considerable assets that might be recycled. The figures provided for NMP 2.0 are larger than expected. The government says that it has the potential of mobilising ₹16.72 trillion in terms of investment, of which about ₹6 trillion will be associated with private-capital expenditure. The government does not see this as unduly optimistic; the NITI Aayog claims that the first version of the NMP mobilised ₹5.3 trillion, almost 90 per cent of its target.

 

From the Union finance ministry’s point of view, given the broader fiscal constraints that it is facing and the urgent need to reduce the debt-to-gross domestic product (GDP) ratio, revitalising asset monetisation is a pragmatic step forward to ensure that existing growth momentum is not lost. The government’s growth strategy over the past few years has basically relied on public-sector capital expenditure. But this mechanism is losing its dynamism and drive. It is difficult to keep increasing the allocation as witnessed in recent years. The Union Budget for 2026-27 has raised capital expenditure, this time by over 11 per cent, but there are significant signs of slowing. The government also recognises that its gross borrowing for next year has surprised the markets. Asset monetisation is a less disruptive way of raising capital from this point of view. Unlike market borrowing, it will attract those interested in long-tenure financing. For example, toll revenue is considered a relatively predictable revenue stream and might attract pools of insurance finance or sovereign wealth funds.

 

That said, the government is right to frame this as not just revenue mobilisation or capital recycling. The central point, as with more traditional forms of disinvestment and privatisation, is to ensure that assets currently locked up in the public sector are exposed to market discipline and the needs of efficiency — and therefore become more productive and raise output down the line. This might explain why NMP 2.0 explicitly blends public and private capital in its calculations. The question is whether such blending will materialise. In theory, there is nothing to stop a new private operator from putting in money to upgrade the revenue potential of a recycled asset. Smart grids or predictive highway maintenance might raise yields, from their point of view, by 15 or 20 per cent over previous benchmarks. Such collateral investment will have spillover effects into the broader economy, raising efficiency all round.

 

In the end, however, it must be recognised that asset recycling or monetisation will always suffer from two drawbacks. The first is the fact that the Indian state, including the regulatory and judicial system, is not entirely trusted by investors. There have been occasions when contracts involving public assets have been overturned. Recent successes have helped win back some trust, but there is still some distance to go on this front. The second is the simple fact that piecemeal cooperation with the private sector might help raise revenue while minimising political pushback, but will not provide the major efficiency boost that is associated with outright privatisation. The government has largely abandoned the thought of selling public-sector units wholly over the past decade, aside from some big-ticket examples like Air India. This option should be put back on the table.