- Asset monetisation — execution is the key
In a bid to monetise public assets, the government has released a list of projects and facilities to be offered to private investors over the next four years through structured leasing and securitisation transactions under the NMP.
GS-III: Indian Economy (Growth and Development of Indian Economy, Industrial Development, Government Policies and Initiatives)
Dimensions of the Article:
- What is Asset Monetization?
- About the National Monetisation Pipeline (NMP) scheme
- Challenges and concerns of Asset Monetisation Plan in India
- Highlights of the NITI Aayog’s recommendations on NMP
- Conclusion regarding NMP
- Way forwards regarding implementation of NMP
What is Asset Monetization?
- Asset monetisation is the process of unlocking the value of investment made in public assets which have not yielded appropriate or potential returns so far.
- Asset monetisation, based on the philosophy of Creation through Monetisation, is aimed at tapping private sector investment for new infrastructure creation.
- This is necessary for creating employment opportunities, thereby enabling high economic growth and seamlessly integrating the rural and semi-urban areas for overall public welfare.
- Many public sector assets are sub-optimally utilized and could be appropriately monetized to create greater financial leverage and value for the companies and of the equity that the government has invested in them.
- This helps in the accurate estimation of public assets which would help in the better financial management of government/public resources over time.
Challenges and concerns of Asset Monetisation Plan in India
- Experts have warned that the expected boost to economic activity due to higher government spending as envisaged under the NMP may need to be weighed against the opportunity costs. Notably the money that the government collects by leasing out assets comes from the pockets of the private sector. So higher government spending will come at the cost of lower private spending.
- The NMP also does not address the various structural problems in the Indian economy such as legal uncertainty around such programmes and the absence of a deep bond market that hold back private investment in infrastructure.
- The success of the NMP will depend on the demand for brown-field government assets among private investors. Higher valuations and stringent contract conditions may put off private sector interest in the NMP.
- There are concerns that the leasing of public assets like airports, railways, roads and other public utilities to private investors could lead to higher prices for end consumers.
- Also merely ceding control of public utilities to private companies without taking steps to foster greater competition among the bidders will only lead to poor outcomes for consumers.
- The allocation of assets owned by governments to private investors is often subject to political influence, which can give rise to corruption.About
Highlights of the NITI Aayog‘s Recommendations on Implementation of Asset Monetisation
- While InvITs structures have been used in India since 2014, such Trusts are not considered a ‘legal person’. Therefore, the IBC regulations are not applicable for InvIT loans. The lenders do not have an existing process for recourse to project assets. Thus, extending IBC provisions to InvITs would help lenders access a faster and more effective debt restructuring and resolution option.
- Tax-efficient and user-friendly mechanisms like allowing tax benefits in InvITs as eligible security to invest under Section 54EC of the Income-Tax Act, 1961, would attract retail investors (individual/non-professional investors). Though this will entail a cost in the form of loss of revenue for the exchequer, the long-term benefits may outweigh the cost as linking investments in specified bonds with the capital gains exemption had proved to be a success in the past.
Conclusion regarding NMP
- The NMP is no doubt a step in the right direction given that it offers a good model for infrastructure development in India. The government would be better able to tackle the ground-level challenges in building infrastructure like acquisition of land, obtaining of requisite clearances, while the private sector can operate and offer indirect finance to such projects through the NMP.
- However the implementation will hold the key in ensuring the success of NMP in boosting economic activity.
Way forwards regarding implementation of NMP
- There should be an open, competitive auction of assets.
- The assets should be competitively priced to be able to attract private investors.
- The contract should be clearly defined with enough provisions available for dispute resolution
- Though the prices of services offered by the private sector would be best determined by market forces, necessary provisions to ensure that the consumers are not exorbitantly charged should be involved in the NMP provisions.
-Source: The Hindu