On August 23, the Finance minister announced a national monetisation pipeline to lease capital infrastructure for revenue generation. It sets an ambitious target of 5.96 lakh crore inflow over the next four years. The funds would be utilised to finance the capital infrastructure of the country. Creating capital assets requires large finances. 

The government is battling on this front of revenue generation for quite a long time. With the slowing rate of growth of the economy, revenue fall due to the imposition of GST, economic disruption due to COVID-19 and the contingent outflow due to COVID induced expenses deteriorated finances of the country. It brought obstacles in achieving the target of the National Infrastructure Pipeline which targets to create social and economic infrastructure with the corpus of ₹102 lakh crore till 2025.

Monetisation and privatisation of assets were mentioned in the budget speech. Operation of Train by IRCTC was the step in this direction.

What is monetisation?

Monetisation is the leasing of brownfield infrastructure to the private bodies for the lump sum payment. In NMP government plans to lease capital assets like roads, railways, airports, lands, etc to the private individual on the pre-defined terms. It is done through the PPP model. The Revenue generated will be used towards the capital formation. The government make it clear, it is just a transfer of operation to the private party, unlike privatisation which gives ownership along with operation to the private party. Another important thing to note is that government will monetise only underutilised assets, not the new assets.

What monetisation brings to the economy?

The government is right in its intention to use underutilised assets for revenue generation and use this revenue for the further creation of capital assets. It helps in clearing the lock-up revenue which will be realised in 20-30 years. For example, the Government constructed a road with huge capital expenditure and for the return on this asset using toll plazas. Toll plaza would cover the cost in a long duration. By simply monetising the asset to a private entity for the evaluated lumpsum amount, it instantly realised the revenue of that asset. Now the private entity would collect toll and maintain that road.

Second, Monetisation would also free government from the operating costs.

Thirdly, It would bring efficiency in the utilisation of the asset. The private entity would bring professional capacity in operation. 

Fourth, It accelerates capital formation. In a normal scenario, the government is stuck on the revenue front but monetisation would give them prompt and huge revenue for capital formation.

The concerns

Monetisation does not work in silos if it is in silos it would be giving a very good outcome. There are many factors associated with it like bureaucratic hurdles, licence systems, contract drafting, judicial interference making it a little cumbersome exercise. there are also some associated problems, first, The evaluation of the lumpsum amount. This would favour the political clout. Political linkages also affect the allocation of assets. As the business close to the ruling party get the benefits. There might be chances of under evaluation of the assets. Second, If the operation is left with the private entity alone without any regulation they might increase the cost of using the assets. This ultimately ends up charging high to the consumers. Third, the Quality of assets would deteriorate at the time of completion of the lease period. To reduce operation costs, the private entity would not invest properly in maintenance and might over utilise. It hampers the quality of the assets. 

Implementation is the solution.

To achieve the target of a $5 trillion economy by 2025, Captial formation would be the biggest contributor. The national monetisation pipeline is good in its intent but if implemented properly. The government should do its homework properly to help it achieve the desired level. It should look that to date they are not able to private any of the listed companies for privatisation. Air India is not attracting any buyers due to the contract terms of the government. It should look into the feasibility of contracts. 

During the Monetisation drive, it should prioritise the assets looking into the importance of assets. Monetisation should be done through a proper dedicated authority established solely for this purpose. A national monetisation monitoring authority should be established that look at real-time allocation, check the efficiency and have accountability.

 Failure or success of monetisation depends on proper monitoring and implementation.

Divyanshu Singh

(Views expressed are personal)