Industrial Sector Updates – Industrial Policy, Ease of Doing Business, etc.

Why is there a push for Asset Monetization?

Note4Students

From UPSC perspective, the following things are important :

Prelims level : Asset Monetization

Mains level : Execution of NMP in spirit

Finance Minister has recently announced the framework for the National Monetization Pipeline (NMP) and its process is under discussion.

What is Asset Monetization?

  • Asset Monetization involves the creation of new sources of revenue by unlocking of the value of hitherto unutilized or underutilized public assets.
  • Internationally, it is recognized that public assets are a significant resource for all economies.
  • Many public sector assets are sub-optimally utilized and could be appropriately monetized to create greater financial leverage and value for the companies and of the equity that the government has invested in them.
  • This helps in the accurate estimation of public assets which would help in the better financial management of government/public resources over time.

What is the National Monetization Pipeline?

  • The NMP names a list of public assets that will be leased to private investors.
  • Only brown-field assets, which are assets that are already operational, are planned to be leased out under the NMP.
  • So, to give an example, an airport that is already operational may be leased out to an investor.
  • Assets that are yet to be developed, such as an undeveloped piece of land, for example, may not be leased out.
  • Importantly, there won’t be any transfer of ownership from the government to the private sector when assets are leased out.
  • The government only plans to cede control over its assets for a certain period of time, after which the assets must be returned to the government unless the lease is extended.

Will NMP help the economy?

  • Better control and utilization: Economists generally believe that scarce assets are better managed and allocated by the private sector than by the government. So to the extent that the NMP frees assets from government control, it can help the economy.
  • Freeing Capital: The government believes that leasing out public assets to private investors will help free capital that is stuck in these assets.
  • Infra generation: The government can use this money, in turn, to build fresh infrastructure under the National Infrastructure Pipeline (NIP).
  • Economic boost: In fact, the proceeds from the NMP are expected to account for about 14% of the total outlay for infrastructure under the NIP. The government believes all this spending will boost economic activity.
  • A perfect model: Analysts also believe that the government has now through the NMP found the right model for infrastructure development.
  • Source of finance: The government, they say, is best suited to tackle the ground-level challenges in building infrastructure, while the private sector can operate and offer indirect finance to these projects through the NMP.

For example, say the government has invested thousands of crores in a road project. It may take the government decades to recover its investment through the annual toll revenues.  Instead, the government can recover a good chunk of its investment by leasing out the right to collect toll for the next 30 years to a private investor.

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.

What lies ahead?

  • The success of the NMP will depend on the demand for brown-field government assets among private investors.
  • Many analysts also believed that the government was expecting buyers to pay too much for a debt-ridden Air India.
  • The pricing of assets and the terms of sale will thus determine the level of interest that private investors show for assets leased under the NMP.
  • In the past, doubts have been raised about the allocation of airports and other assets to certain private business groups (say Adani Group).
  • So the process that the government adopts this time to allocate assets may come under scrutiny. There is likely to be a demand for an open, competitive auction of assets.

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KRISHNA MOHAN V.
KRISHNA MOHAN V.
1 month ago

Let’s oppose the National Monetisation Pipeline.

The Central government has unveiled a four-year National (Asset) Monetisation Pipeline (NMP) aiming to garner Rs 6 lakh crore. The NMP is aimed at handing over huge functional infrastructural assets of the country to private corporate companies and big business houses, including foreign MNCs. The corporate cronies of the government will be allowed to mint huge money utilising the assets built with people’s money and labour. In the same line many NDA led state governments have also started the exercise of gifting the state owned assets and land to private corporate.

Privatisation at any cost and by any means has become the hallmark of this government. It is now seeking to hand over the huge state-owned infrastructural assets for upfront payment for future expected income. That is the sinister design of this so called NMP, which is going to handover the right of operating these huge infrastructural assets for a period of 30-35 years to the monopolies. This would adversely impact the entire economy availing these infrastructural services. It will result in further worsening of the already alarming situation of job losses and unemployment.

Infrastructural assets identified for monetisation include 400 railway stations, 90 passenger trains, 1400 km railway track, 741 km Konkan Railway, 15 railway stadiums and selected railway colonies, 265 railway goods sheds and 4 hill railways –all for a mere Rs 1.5 lakh crore; 25 Airports fully modernised with huge investment out of the public exchequer for only Rs 20,782 crore; 160 coal mining assets with huge coal reserves—for only Rs 28,747 crore; 3930 km long petroleum pipe line—for a paltry Rs 22503 crore; 31 projects in 9 major ports with huge network of navigable waterways –all for Rs 12,828 crore; Warehouses of Food Corporation of India and Central Warehousing Corporation of total storage capacity of 210 lakh MT –for only Rs 28,900 crore—these are few more examples of day-light robbery of the national exchequer in the name of “Asset Monetisation”.

Also 28,608 circuit kilometres electricity grid under Power Grid Corporation of India and around 30,000 kilometres of highways are also being handed over to private corporate for long-term with monopoly operational rights. Along with the NMP, government has now come out with a land monetisation programme and a public sector company titled ‘National Land Monetisation Corporation’ has been set up to facilitate selling away huge land assets of PSUs, railways, defence sector, BSNL, etc., for a pittance. And this is not all – the NMP project envisages further flow of more infrastructural assets through that pipeline to private corporates giving them long-term monopoly rights.

The present regime with its historical opposition to the public sector and to self-reliant development of the national economy based upon it, is resorting to privatisation of the entire public sector covering infrastructure, industries and public utility services, by any means and at very low prices. It is completely unconcerned about the destructive impact of these measures on the national economy and our people. In the thirty-odd years of neoliberal policy regimes, the present regime account for the overwhelming share of disinvestment of public sector enterprises.

Decisive and determined struggles against the loot and handing over of people’s assets to big business, domestic and foreign, in the name of “monetisation” of assets should be developed.

The Union government claims that the NMP involves only a lease of assets, not their sale. This is a patently misleading claim. The big business entities that make use of the assets leased to them will, through fleecing their customers and other means, make huge gains worth several times the paltry lease amounts they pay to the government.

There is no guarantee that the assets will be returned to/taken back by the government at the end of the lease period in the same conditions as at the time of lease. The entire exercise begs the simple question of why the assets cannot be operated by the government to benefit the people.

Let’s oppose the Union government’s anti-national and anti-people project of “National Asset Monetisation Pipeline”. This anti-national design of loot on national assets shall not pass.