This Article is written by Pratham Bhatt (pursuing law at NMIMS)
Table of Contents
Union Finance Minister Nirmala Sitharaman, on the 23rd of August 2021 announced that the centre aims to raise more than ₹ 6 lakh crore by the monetization of government-owned assets. Also known as Capital recycling, the concept is relatively alien to a majority of the population. It is not uncommon that some might consider this as a branch of privatization. In simple words, the National Monetization pipeline is the leasing of government-owned assets and properties over a four-year period to raise approximately $80 billion. Government-owned properties such as airports and railways will be up for grabs.
In these unprecedented times of economic uncertainty, the NMP’s 4-year plan actually sounds like a decent idea to raise some funds. The questions to be asked are ‘how and on what are these funds going to be spent on? To answer these questions we have to know about the NIP or the National Infrastructure Pipeline.
National Infrastructure Pipeline
In his 2019 Independence-day speech, Prime Minister Modi mentioned the National Infrastructure pipeline for the first time. It is an elaborate investment scheme undertaken for a period of 5 years (from 2020 – 2025). In a span of these 5 years, the Centre plans to invest an approximate amount of ₹111 lakh crore in the country’s economic and financial infrastructure. Investments would be made across 7320 projects across the length and breadth of India. A lot of alternatives had to be looked into and the Centre had to be creative to raise funds for such an ambitious project.
Approximately 85% of the total financing of the project was to be done by old school and traditional ways of raising capital. The rest of the sum had to be raised via innovative moves such as Capital recycling. This is when the National Monetization Pipeline came into the picture. The NMP was one of the innovative measures opted by the Government with some other measures being Development Finance Institutions. Out of the approximate 15% funds yet to be generated, the NMP would contribute 5-6% of the total.
The NMP as a branch of brownfield investments
The 21st century has witnessed a rise in the number of ‘brownfield investments’. When a pre-existing manufacturing/production facility is leased out to a private organization or a government to start a new production activity, it is known as brownfield investments or simply brown-field. ‘Greenfield investments’ are the polar opposite of brownfield investments as it involves the construction of a new production facility, right from scratch. The former has an advantage over the latter in terms of efficiency and conservation of time. The Monetization Pipeline is an example of brownfield investments. Countries such as Australia prefer brownfield investments and have also tried their hand at ‘Capital recycling’.The NMP is the ideal option for the optimum use of idle resources/idle capital for the mutual benefit of both, the private and public sectors.
Pros and Cons of the NMP
The plan has to be carried out with accuracy. It sounds like the perfect solution but at the same time, it may also backfire. Like every idea ever, it carries a lot of advantages and disadvantages. A few reasons as to why the NMP is a practical decision are as follows;
- The revenue that will be generated in the form of long-term funds will be used to upgrade the economic infrastructure and make government/public investments.
- There is a demand for goods and services of high quality. The efficient management and operations of the private sector along with the existing public sector facilities can be a good match.
- Valid considerations and contractual relations in between the public and private sector lead to sharing of risks. Provisions are made for the assets and property leased to be returned back to the government.
- The time frame of the NMP perfectly coincides with that of the National Infrastructure pipeline. Funds raised can be utilized for upgrading the existing infrastructure.
Possible disadvantages of the plan are as follows;
- If the assets/property leased out is in poor condition, it hinders the process of production and often causes delays. Maintenance and repairs done lead to increased costs.
- Properties to be leased are often in unfavorable locations and may cause a lot of constraints.
- Regulatory issues.
Details of the Policy
The total estimated revenue to be raised is close to ₹ 6 lakh crore. This aim has to be met over a period of 4 years. In the financial year that began on the 1st of April 2021 (F.Y 21-22), 15% of the total assets that are enlisted under the NMP are planned to be leased out. These assets have a combined value of ₹ 0.88 lakh crore. Railways (Rs1.5 Trillion), roads (Rs 1.6 Trillion) and power (Rs 85302 crore) are the 3 biggest sectors to be monetized and they amount to roughly 66% of the total assets rolled out. Telecom, real estate, stadiums, mines and many more combine to form the ‘miscellaneous’ segment of the pie chart below.
Further details about the National Monetization Pipeline are as follows;
- 26,700 Kilometers of roads are set out to be monetized by the government.
- More than 150 projects under the mining and coal sector along with 2 stadiums are set to be monetized (one of them being the famous Pt. Jawaharlal Nehru stadium located in Delhi).
- Ports and 30 projects in the marine sector are to be monetized. These projects are valued at around Rs. 13,000 crore.
- NHAI or the National Highway Authority of India that was in loss since the past 2 years has pledged to undertake new developmental projects to improve existing infrastructure.
- BHEL and IRCTC are planning to add a set of private trains. These trains require an investment of Rs. 7200 crore.
- By methods of OMDA or operation, management and developmental agreements, the government would be redeveloping 2 stadiums in partnership with private organizations. These stadiums would then be monetized. The same was also done for the Mumbai and Delhi international airports.
- International organizations such as Brookfield (Canada) have entered the telecommunication sector in India.
The need for the NMP
There are uncountable movable and immovable assets that are lying idle and are proving to be of no use, neither to the public nor to the government. The Monetization pipeline will ensure the maintenance of these assets along with its primary goal of generating revenue. This effort is being done for the betterment of the state’s economic infrastructure. Productivity, efficiency and economic growth are all going to rise with an upgrade in the existing infrastructure. Better infrastructure will also lead to an increase in the number of employment opportunities and also to a higher standard of living. Sound infrastructure attracts foreign investors. They need a strong reason as to why they should make India their production and manufacturing centre.
A business-friendly environment will ultimately put India on a global stage where it can compete with other economically emerging and established countries. With proper execution, the NMP can be an absolute game-changer. A good start will go a long way. It is important that the government focuses on regulation and the plan moves ahead in the right direction.
- NITI Aayog www.niti.gov.in, https://www.niti.gov.in/sites/default/files/2021-08/Vol_2_NATIONAL_MONETISATION_PIPELINE_23_Aug_2021.pdf
- Title – Centre announces 4 year National Monetization Plan, Written by – Shivani Dwivedi, Published on 23rd September 2021, website – www.cenfa.orgin, https://www.cenfa.org/uncategorized/centre-announces-4-years-national-monetization-plan/
- Title – National Monetisation Pipeline: unlocking value in brownfield projects via the private sector, written by – Sunny Verma, Published on 9th September 2021, website – www.indianexpress.com, https://indianexpress.com/article/explained/explained-what-is-the-governments-plan-with-the-national-monetisation-pipleline-7468258/
- Title – How the National Monetization Pipeline works, website – www.hindustantimes.com, https://www.hindustantimes.com/ht-insight/economy/how-the-national-monetisation-pipeline-works-101630389691710.html