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NITI Aayog's document titled "Asset Pipeline "asserts that the Indian government's commitment towards speeding up infrastructure building and strengthening is visible in the union budget of 2021-2022. The NITI Aayog's document mentions that the union budget has emphasized on creating an institutional structure with a strong emphasis on asset monetization and enhancing capital expenditure in central and state budgets. It is a well-regarded fact that robust infrastructural facilities are essential for inclusive development.
To bridge the existing gaps in infrastructure and to cater to the needs of future generations, the government of India undertook "a first of its kind and a whole of government exercise in fiscal year 2019-2020 to lay infrastructure vision for the country." This article aims to understand asset monetization and its strengths by relying on observations of NITI Aayog’s documents “Monetization Guidebook ” and “Asset Pipeline.” The national monetization pipeline has been announced to lay down a clear framework for monetization and to give investors a ready list of assets to generate investment interest.
In the “Monetization Guidebook ” , asset monetization which is also called capital recycling is defined as a practice that consists of the limited period transfer of performing assets to unlock idle capital and reinvesting it in other assets or projects that may deliver additional benefits. Asset monetization here entails a limited period license of a government asset to a private entity.
In this system as the document explains, a private entity is expected to operate and maintain the assets based on the terms of the contract , and generate returns. The funds received by the government as per terms of contract are then invested in new infrastructure projects. After the end of the contract assets are transferred back to public authority. The NITI Aayog document argues that transactions should be structured around revenue rights as against transfer of full ownership . Asset monetization is thus based on contractual partnerships. The document argues for the selection of private partners through a transparent mechanism.
According to the NITI Aayog document, the national monetization pipeline envisages infrastructure investment of rupees 111 lakh crore over a five years period. With an annual investment average of 22 lakh crore. The document mentions that 15-17% of this outlay is estimated to be raised through asset monetization and other innovative ideas. The government is trying to monetize brownfield assets by unlocking their potential value through a national monetization pipeline. Brownfield asset refers to those assets that are developed but may still require ongoing capital expenditure and expansion.
The document “Asset Pipeline” argues that the aggregate asset pipeline over FY 2022-25 is valued at 6 lakh crore. The top five sectors capture approximately 83% of aggregate pipeline value: Roads (27%) followed by Railways (25%), Power (15%), oil & gas pipelines (8%), and Telecom (6%).
The NITI Aayog document argues that a well-strategized asset monetization program will help in the creation of new assets without increasing debt levels and taxes. It will also lead to improved performance monitoring and will enhance investment opportunities.
Hardeep Singh Puri argues that the use of infrastructure investment trusts and real estate investment trusts which like mutual funds pool investments will allow the people of India and prominent investors to invest in our national assets. Montek Singh Ahluwalia argues that one reason why the government would have been preferring monetization over privatization could be that private ownership involves the transfer of scarce resources like land whereas in monetization land stays with the government once the period of agreement expires.
Amartya Lahiri rightly argues that one of the biggest drawbacks of NITI Aayog's plan is that it has not articulated the reasons for the inefficiency of the public sector in asset management. Amartya Lahiri argues that if the problem is related to personnel management , only then private management can help. Ajay Shah also points out problems of asset monetization. He argues that asset monetization may lead to the build-up of a gigantic public sector. He also points out to the fact that if the private entities will not own the assets they will have less incentive to maintain them in best of their condition. Lawrence Summers once famously remarked “In the history of the world, no one has ever washed a rented car.”
Michael Pinto argues that the criticism leveled against monetization that assets would not be maintained property and will suffer wear and tear is valid. But he argues that the agreement to lease could contain clauses that specifically mention that the leased assets must be returned in the same condition as they were offered in with an exception for normal wear and tear. This idea is indeed appealing and well structured agreements protecting the interests of all stakeholders can solve the problem.
Finally , NITI Aayog’s CEO Amitabh Kant in his interview with The Economic Times mentions that the ultimate objective of the program of national monetization is to create a win-win situation for all stakeholders and provide access to quality infrastructure to common citizens. The expectations from the National Monetization Program are quite high. Only time will tell how successful the program is in its ability to fulfill the expectations and goals of all stakeholders.
By Preet Sharma
Preet Sharma is a Graduate of Political Science from Hindu College , Delhi University.