What is the National Monetisation Pipeline?

Economy Sep 06, 2021

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Pre-text: The government announced the launch of the National Monetisation Pipeline (NMP) worth around Rs.6 lakh crore. The NMP identifies 13 major sectors - including air terminals, roads, railways, pipelines, and shipping. The government intends to restructure its brownfield framework investments, and therefore, these assets will be privatized. This reform is an ‘asset monetisation’, not to be confused with ‘privatisation’.

Brownfield investment: When a firm or government organization purchases or leases existing manufacturing facilities to establish a new industrial activity, this is referred to as a brownfield investment. This is one foreign direct investment strategy.

Difference between Asset Monetisation and Privatisation

The term privatization means that the future sale, accessibility, affordability and supply requirements of assets may be determined by the private company without government oversight. As a result, private owners must not return the assets and are permanently liable for them.

Asset monetization is similar to public-private partnerships, where revenues are generated via structured contractual relationships within the NMP. Such an ecosystem would provide public interest protection and redress to stakeholders. The federal government intends to monetize the brownfield projects through private investors who will profit rather than own the assets. However, it is the private investors who will contribute early capital, rent sharing, and investment pledges so that the assets can be redeveloped. And so, further infrastructure construction can be accomplished with this new generated cash.

National Monetization Pipeline (NMP)

  • The NMP includes an asset brownfield infrastructure pipeline for four years. Besides providing visibility for investors, it also serves as a roadmap for the government's Asset Monetization Plan.
  • Along with being an instrument of financing, the government sees asset monetization as a strategy for increasing and maintaining infrastructure.
  • According to the Union Budget 2021-22, monetizing assets will contribute to better funding of alternative and creative infrastructure.

Aims and objectives of the program

NMP aims to provide the common man in India with access to high-quality, affordable infrastructure. By leveraging private sector investment for new infrastructure creation, asset monetization is based on the philosophy of Creation through Monetization. Moreover, creating jobs is essential to enable economic growth, as well as integrating rural and semi-urban areas seamlessly for overall public welfare. The scheme is also designed to tap into institutional and long-term patient capital to unlock the value of brownfield public sector assets.

NMP Layout

Each ministry and department's pipeline was formulated based on inputs, consultations, and evaluations of its assets. The NMP does not list non-core assets for monetization by disinvestment or monetization. In addition, the infrastructure sector is currently only made up of assets owned by government ministries and CPSEs (Central Public Sector Enterprise) Coordinating and collecting information on countries' asset pipelines is currently in progress, and this should be added in due course.

Implementational Curveballs

In the opinion of Amitabh Kant (Chief Executive Officer at NITI Aayog), implementation will depend on optimal structure, clearance time, transaction timing, monitoring of progress, and governance. To oversee the program, the Core Group of Secretaries for Asset Monetization (CGAM) has been appointed. As laid out in the Union FY22 budget, a dashboard displaying asset monetisation will be used for monitoring.

Conclusion: The government perceives assets to be more than just  financing components, but as a perspective alteration in framework activities, development, and upkeep, resolved to employ asset efficiencies and the private sector's power to "progressively respond to the changing global and monetary reality. If the implementation is done with utmost sincerity, then the policy would be beneficial in the longer run.

This article has been written by Apurva Kale for The Paradigm.

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