by Shruthi Ananth

Amid concerns over India’s rising debt burden as well as high levels of unemployment and poor economic growth, the government has launched the National Monetisation pipeline (NMP), a supposedly innovative alternative financing for infrastructure through asset monetisation. Asset monetisation is a method of generating government revenue through selling or leasing infrastructure assets. Poor infrastructure and restrictive labour laws have long been blamed for unemployment, which is a major social issue in India. This infrastructure project partly funded by NMP is seen as the government’s answer. According to the government, investment-led growth is central to its economic agenda, and they consider one of the pre-requisites of investment-led growth to be capital and asset recycling. They believe that asset recycling and monetisation is the key to value creation in infrastructure by unlocking public investment and employing private sector efficiencies in operations and management.

The National Monetisation Pipeline is a part of the National Infrastructure Pipeline (NIP) whereby the government envisages infrastructure investment of $81 billion over five years (from FY 2020 to FY 2025). Through this major investment project, the government hopes to enable double-digit economic growth for the country, which will, in turn, ensure enhanced economic activity and employment opportunities in a post-crisis economy. However, a major obstacle to the success and timely implementation of the project seems to be the availability of capital, and this significant increase in investment (2.5 times historical levels of spending on infrastructure) is intended to be funded by mostly traditional sources of financing (83% – 85%) as well as 15% -17% through asset monetisation (NMP). These investment projects funded by the NIP pipeline include investment in affordable and clean energy, convenient and efficient transportation and logistics, housing and water supply for all, digital services access for all, quality education, doubling farmers’ income, good health and wellbeing, and sustainable and smart cities.

One concern is how the funds released through NMP and NIP more broadly will be utilised within the economy. Looking at the government’s investment plans it is clear to see that they are somewhat vague. It is also difficult to understand the government’s aims and how it plans to achieve them. For example, there is no clear indication of how the government intends to achieve the growth rates projected for the Indian economy through these investments, especially since many of the investment projects do not have direct links to maximising long-term growth in terms of increasing productive potential. Furthermore, the question on how the government intends to balance and prioritise the several objectives set out in their report is uncertain as well. These issues must be considered carefully, as they influence how the policy will be carried out and ultimately its effectiveness.

The government claims that India’s method of implementing asset monetisation does not involve outright sales but more complicated transactions. Some argue that such transactions are less transformative such as liquidating small minority stakes in a few airports, as well as leasing of various brownfield infrastructure assets such as roads, railways, shipping, aviation, power, telecom, oil & gas and warehousing sectors to investors for up to 25 years. On the issue of monetisation of core infrastructure assets, India’s Finance Minister, Sitharaman asserted that it does not necessarily indicate the selling of assets. Through this, the government envisages ‘Creation through Monetisation’. The idea is that investors get a bond-like return from stable mature assets that are already up and running, and these funds are channelled into new infrastructure asset creation. This increase in infrastructure spending will then enhance growth in the long-term productive potential of the economy through improving the supply side. Another component of this idea is that the brownfield infrastructure assets will become more efficient and gain greater investment under private management.

However, this drive towards privatisation of national infrastructure assets has started with the sale of the national air carrier, Air India, last month to conglomerate Tata with hints of Life Insurance Corporation (LIC) being listed early next year. These announcements came after much speculation on whether the government of India would fold to political pressure and withhold the sale of these national institutions, which seemed likely given Sitharaman’s statement about not selling assets. This confusion leads many to wonder whether the government has a plan, although some argue that this is merely a strategy by the government to extricate themselves from bureaucratic tangles and resistance that has put a stop to previous attempts at privatisation. This is an especially important question to consider since it is suggested that the government may prioritise demands to build infrastructure and step-up social spending due to political pressure, resulting in the decision to sell off “loss-making state enterprises”, that they do not have the fiscal space to maintain. Therefore, although the plans seem to focus on benefitting the general public through initiatives on water supply etc., they may be performative and could potentially result in enriching certain individuals or organisations at the expense of the general public.

Indeed, a major criticism of the Asset Monetisation Plan by the opposition is that it is ‘a legal and organised plunder’ and some go to the extent of claiming that it is also a secret plan to transfer valuable public assets developed over the years to select individuals. They also believe that asset monetisation will lead to private monopolies that will exploit the public. An underlying principle and selling point for the national monetisation scheme is that the public will get a better service as new operators improve efficiency and increase investment. Thus, these criticisms highlight the importance of the methods utilised to carry out asset monetisation and NIP more broadly. Theoretically, asset monetisation could benefit the Indian economy, whom it benefits will depend on how the government chooses to carry it out. The government has already stated that they intend to regulate the management of assets through setting KPI’s and monitoring performance, however, only time will tell of their effectiveness.

The views expressed in this article are the author’s own, and may not reflect the opinions of The St Andrews Economist.