How the National Monetisation Pipeline works
Union minister for finance and corporate affairs, Nirmala Sitharaman, recently launched the asset monetisation pipeline of central ministries and public sector entities: ‘National Monetisation Pipeline (NMP Volumes 1 & 2)’. The pipeline has been developed by NITI Aayog, in consultation with infrastructure line ministries, based on the mandate for ‘Asset Monetisation’ under Union Budget 2021–22. NMP estimates aggregate monetisation potential of ₹6 lakh crores through core assets of the central fovernment, over a four-year period, from FY 2022 to FY 2025.
Infrastructure: An enabler of growth
Investment in infrastructure is pivotal for accelerated and inclusive socio-economic development of a country. To bridge existing infrastructure gaps and cater to its future potential, India’s National Infrastructure Pipeline (NIP) envisages an infrastructure investment of Rs. 111 lakh crore over the five-year period (FY 2020-25). Financing of infrastructure investments requires a diversified set of alternatives, especially so in emerging economies like India. And the scale at which it has been envisaged under NIP, it can only be made possible through a re-imagined approach, and a look beyond the traditional sources or models of financing. It is, therefore, that NIP has emphasised on innovative mechanisms–such as asset monetisation–for generating additional capital. A sizeable inventory of infrastructure assets has been created over the past decade through public investments which can now be leveraged for tapping private sector investment and efficiencies.
Asset monetisation: The concept
Asset monetisation, also commonly referred to as asset or capital recycling, is globally a widely used business practice. This consists of limited period transfer of performing assets to unlock “idle” capital and reinvesting it in other assets or projects that deliver improved or additional benefits. Governments and public sector organisations, which own and operate such assets and are primarily responsible for delivering infrastructure services, can adopt this concept to meet the ever-increasing needs of the population for improved quality of public assets and service.
Asset monetisation can be undertaken through a range of instruments/ tools broadly categorised into two approaches: (i) Direct Contractual Approach such as PPP Concessions, and (ii) Structured Financing models such as Infrastructure Investment Trust (InvIT), Real Estate Investment Trust (REIT).
Need for NMP
For the asset monetisation initiative, to progress in the right direction, it is imperative that the government makes available a strong pipeline of attractively structured, brownfield projects. Further, sustained flow of transactions and visibility on same, across asset classes, is a key pre-requisite of long-term investors. A robust asset pipeline, not only enables investors to plan their fund raisings and investment timelines, but also helps asset owners track and scan the performance of assets. Within this context, NMP was announced in the Union Budget 2021-22.
NMP will prima facie help in evolving a common framework for monetisation of core assets. It will critically clarify its distinction from privatisation, eventually helping to create a virtuous cycle of ‘develop, commission, monetise and invest’. The framework for monetisation of core assets has three key imperatives:
NMP has been planned to be co-terminus with the remaining four-year period of the NIP. NMP forms a baseline for the asset-owning ministries for monitoring and tracking – investment, performance and data on potential assets, for the 4-year period from FY 22 to F0Y25. The Report on National Monetisation Pipeline has been structured as a (i) Guidance book for Asset Monetisation (Volume I) and (ii) Medium-term Roadmap including the pipeline of assets (Volume II) of central government line ministries and CPSEs in infrastructure sectors with high monetisation potential.
National Monetization Pipeline: Summary
The total indicative value of NMP for core assets of central government has been estimated at ₹6 lakh crore over the 4-year period, FY22-25. The breakup of the overall pipeline for FY 2022-25 and the sectoral share is provided in the figure below:
In terms of annual phasing by value, 15% of assets with an indicative value of ₹0.88 lakh crore are envisaged to be rolled out in the current financial year i.e. FY 21-22. Accordingly, the year-wise Indicative value of the monetisation pipeline is given below:
The top 3 sectors (by estimated value) are Roads (27%) followed by railways (25%) and power (15%). The share of sectors in terms of indicative monetisation value in NMP is given below.
Approach to NMP
The NMP has been created by aggregating the information provided by various stakeholders including line ministries, departments as well as assessments of secondary information available on existing infrastructure assets in each of the sectors. A bottom-up approach has been adopted wherein the existing core infrastructure asset base managed under central sector agencies was identified and mapped. Monetisation value in the NMP is only an indicative high level estimate based on thumb rule estimates. Various approaches have been adopted to determine indicative value of asset pipeline. The actual monetisation value will be determined based on detailed valuation or feasibility studies (as may be applicable) at the stage of transaction structuring.
(The research has been conducted by NITI Aayog and shared exclusively with Hindustan Times as part of a non-commercial content-sharing agreement)