India’s National Infrastructure Pipeline (NIP) envisages an infrastructure investment of Rs 111 lakh crore over a period of five years (2020-25). In the wake of COVID-19, to finance infrastructure investments at such a scale, there was an urgent need for an innovative approach.
Pursuant to this, Union Budget 2021-22 identified a three-pronged strategy to keep investments under NIP on track. One of the strategies among them is ‘asset monetisation’ and the government has paved the way for preparation of a National Monetisation Pipeline (NMP) of potential brownfield infrastructure assets to provide a medium-term roadmap for monetisation and give potential investors a ready list of assets to generate investment interest.
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What is Asset Monetisation/ Capital Recycling?
Asset monetisation consists of limited period transfer of unutilised or underutilised public assets to a private sector entity to unlock idle capital and reinvest it in other assets or projects for improved and additional benefits. This concept is geared towards creating employment opportunities and meeting the ever-increasing needs of the population for improved quality of public assets and service. The objective of the plan is to therefore unlock the value of investments trapped in underutilised but fully-developed public sector assets by tapping into private sector funds, efficiency and appetite for investment. The proceeds from the use of such assets would then be used to augment greenfield infrastructure projects or further develop existing brownfield projects.
It must be noted that this does not include a transfer of ownership. A structured contractual partnership under this plan, on the other hand, involves a return of asset to the owner at the end of the transaction period. Asset monetisation or recycling is thus a two-part process where the first part is monetisation of existing assets through sale or lease to the private sector followed by reinvestment in new infrastructure using the proceeds received through asset monetisation. This presents a win-win plan to align investor or private players’ preferences and risk appetites with government’s infrastructure development plans.
Why Do We Need Asset Monetisation?
It is important to execute NMP to boost infrastructure growth, which in turn requires long-term capital that banks are normally not keen to finance. It must be noted that the long-term concession of core operational assets, which garners upfront funds that can be invested in other infrastructure assets, has been occasional or sector-specific. Given the benefits of this approach validated by successful execution of the exercise by agencies such as National Highways Authority of India, the need to systematically adopt these initiatives across varied asset classes and streamline the modality of its functioning has been felt. Additionally, the fixed asset turnover ratio for Central Public Sector Enterprises (CPSEs) has been on a decline. Given the CPSEs have gross fixed assets valued at Rs 14.4 lakh crore cumulatively, there is a lot of unmet potential that can be met by its effective utilisation under the NMP.
Although monetisation through disinvestment and privatisation has been achieved in various sectors by the current dispensation, mere monetisation is not always considered enough—the fear of squandering of funds or its unwise allocation may prevail. A clear strategy of asset recycling that will accompany the NMP will help allay these fears.
NMP is, thus, an initiative by the government to strategise the asset monetisation of brownfield public sector assets by tapping institutional and long-term capital, which can thereafter be leveraged for further public investments. NMP has adopted a bottom-up approach where the existing core infrastructure asset base managed under central sector agencies is identified and mapped. Category of assets covered under the plan include de-risked brownfield core assets. De-risked assets without any pending issues of land acquisition, financial constraints or other clearance requirements, will be considered. Assets that are central to the business objectives of an entity and are used for delivering infrastructure services to the public or users are considered as core assets for the purposes of monetisation. These include asset classes such as transport (roads, rail, ports, airports), power generation, transmission networks, pipelines, warehouses etc.
Apart from these conventional infrastructure sectors, assets from mining and housing redevelopment sectors have also been included in the NMP owing to the ability of these sectors to stimulate private sector investment. Land, building and pure play real estate assets have not been included in the NMP. Fifteen railway stations, 25 airports, 160 coal mining projects are expected to be put up for asset monetisation. The strategy outlined by Niti Aayog identifies assets which are currently generating revenue or can be augmented for future operations as potential core assets for monetisation.
Sector-wise Monetisation Pipeline over FY 2022-25
The top five sectors (by estimated value) capture ~83 per cent of the aggregate pipeline value. These top five sectors include: Roads (27 per cent) followed by Railways (25 per cent), Power (15 per cent), Oil & Gas pipelines (8 per cent) and Telecom (6 per cent).
The National Monetisation Pipeline (NMP) will work in tandem with the National Infrastructure Pipeline (NIP) to bring in investment for underutilised or languishing brownfield units, generating greater value for the government which will in turn help India’s economy. Currently, infrastructure projects worth Rs 44 lakh crore are under implementation via the NIP and overall Rs 111 lakh crore is to be spent by 2024-25 for implementation of the projects under NIP (by Centre, states and private investors). The NMP period has been kept co-terminus with the remaining period of the NIP to fulfil its developmental goals. The estimated amount to be raised through monetisation is around 14 per cent of the proposed outlay for the Centre of Rs 43 lakh crore under NIP.
Vishnu Mittal is a Chartered Accountant and treasurer of Delhi Unit of Bharatiya Janata Party. The views expressed in this article are those of the author and do not represent the stand of this publication.
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