A2Z of Asset Monetization

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What is Asset Monetization :

Asset monetisation is the process of creating new sources of revenue for the government and its entities by unlocking the economic value of unutilised or underutilised public assets. A public asset can be any property owned by a public body, roads, airports, railways, stations, pipelines, mobile towers, transmission lines, etc., or even land that remains unutilised.

As a concept, asset monetisation implies offering public infrastructure to the institutional investors or private sector through structured mechanisms. Monetisation is different from ‘privatisation’, in fact, it signifies ‘structured partnerships’ with the private sector under certain contractual frameworks. 

Asset monetisation has two important motives: Firstly, it unlocks value from the public investment in infrastructure, and secondly, it utilises productivity in the private sector. Asset monetisation aims to tap the private sector investment for new infrastructure creation.

Procedure :- In this the government transfers the asset to a private firm or individual for a specified period of time like 10, 20, 30 years in exchange for some specified amount of money and after the expiry of that tenure the asset comes back to the government.

Thus in Asset monetization the ownership of the asset is not transferred.

Now What is National Monetisation Pipeline:-

The government of India announced the National Monetisation Pipeline (NMP) worth Rs 6 trillion on August 23 in 2021. This scheme aims to serve as a roadmap for the asset monetisation of several brownfield infrastructure assets across sectors including roads, railways, aviation, power, oil and gas, and warehousing. 

NMP is a central portal that could act as a land bank housing information about all assets that have been lined up for utilisation by strategic investors or private sector companies. It will also assess the potential value of unused and underutilised government assets. 

The NMP targets to raise Rs 6 trillion through asset monetisation of the central government, over a four-year period, from FY22 to FY25. However, the ownership of the assets will be retained by the Centre. NMP focuses on brownfield assets in which investments have already been made but are underutilised. 

The underutilised brownfield assets are in sectors such as roads, railways, airports, mines, and power. This initiative is necessary for bringing in private capital which will be used for infra creation. 

According to an official communique, the top five sectors in terms of contribution to NMP are roads (27%) followed by railways (25%), power (15%), oil and gas pipelines (8%), and telecom (6%).

How will it impact well-being of the economy?

Monetization of infrastructure assets will have a two-pronged benefit—it will yield appropriate returns for the concerned PSU and promote balanced regional development. As of now, these assets have been lying idle and, with private entities bidding for them, they will be utilized for creation of productive assets and setting up of factories leading to regional economic development.

Also, the concerned PSU will get access to additional resources which can be utilized for restructuring, reinvestment and expansion. It can also trim market borrowings by PSUs and bring down interest payment burden.

Booster dose

Challenges to Asset Monetization :-

What are the risks?

  • Political lobbying: The allocation of assets owned by governments to private investors is often subject to political influence, which can lead to corruption. In fact, many in the Opposition allege that the NMP will favour a few business corporations that are close to the government.
  • Burden of opportunity cost: The expected boost to economic activity due to higher government spending may also need to be weighed against the opportunity costs. For one, 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.
  • Legal uncertainties: The NMP also does not address the various structural problems such as legal uncertainty and the absence of a deep bond market that hold back private investment in infrastructure.
  • Sheer Privatization: There are also concerns that the leasing of airports, railways, roads and other public utilities to private investors could lead to higher prices for consumers. If the government merely cedes control of public utilities to private companies without taking steps to foster greater competition, it can indeed lead to poor outcomes for consumers.
  • Policy compulsion: The government’s past disinvestment projects such as the sale of Air India did not catch the fancy of investors owing to the stringent conditions set by the government. In the case of Air India’s sale, the buyers were supposed to possess a certain minimum net worth and stay invested in the airline for at least three years.

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