All you wanted know about National Monetisation Pipeline

There are many who invest in a second home, but cannot stay in it for various reasons. Letting that home out will get the owner rental income, while also ensuring upkeep of the property. The government is walking down the same path. On August 23, the Finance Minister announced the National Monetisation Pipeline (NMP), which expects to raise ₹6-lakh crore by monetising the operating assets of the Central Government over a four-year period ending FY25.

The NMP is designed to unlock the value of investments in brownfield public sector assets by tapping institutional and long-term capital. So, government-owned roads, railways, power plants, gas pipelines, airports, ports, warehouses et al could be leased out for a specified period to non-government entities.

The government will receive money for the transfer either in the form of an upfront payment or as a revenue share. While the details are not yet out, NMP could be executed through a range of instruments. A direct contractual instrument such as a public-private partnership could see a private player run an asset such as a toll road for a specified period and earn revenues, after paying an upfront amount or revenue share to the government. Or it could use structures like the Power Grid Infrastructure Investment Trusts (InvIT), where assets like transmission lines are transferred to the InvIT and units in the InvIT are sold to public investors who pay upfront for a share in future distributions.

Government finances are stretched, especially post the massive economic jolt dealt by Covid. Public welfare measures require funding, more so at the current juncture when the onus is on the government to prop up economic activity. With the fiscal deficit already stretched to its limits, the government needs to come up with alternative ways to shore up its budget.

Whenever the government moots divestment of state-owned entities, it faces allegations of pawning off family silver. NMP helps realise value from idle assets, without the Centre transferring ownership of public sector assets to private parties for good.

The Centre has reiterated that the primary ownership of assets under NMP will continue to be with the government. Funds from NMP will be used for infrastructure creation under the National Infrastructure Pipeline. Private entities will use the asset for a said tenure, at the end of which they will be handed back to the public authority. It remains to be seen how close the government can actually get to its aim of ₹6-lakh crore though, as that may require faultless execution.

The NMP is proof that the government may have built assets, but the private sector can put them to more efficient use. Managing infrastructure projects is not everybody’s cup of tea and NMP tries to select private participants who have a track record in doing it. As there are only a handful of industrial groups in India that can manage large infra assets, efforts to rope in private partners could lead to allegations of cronyism if the same groups participate across sectors.

The design of NMP is such that the private sector entity will have to realise value from the asset. This may lead to higher pricing and leaner business practices to get high RoI from that asset, which could lead to a spike in the cost of using that service for consumers (higher tolls on highways or user charges on airports, for instance). But once the government hands projects to private players for a price, it should not interfere in the workings during the shelf life, even if the service/product cost rises for the end-consumer. That will be true laissez-faire !

Many ideas, on the surface, appear brilliant. It’s no different for NMP. Lack of identifiable revenue streams in various assets, dispute resolution, presence of regulated tariffs in certain sectors and lack of independent sectoral regulators are some hurdles NMP needs to cross. Lastly, a regime change, should not throw a spanner in the works of NMP projects. Usually, new regimes accuse old ones of corruption and this can lead to legal cases that stretch for years.

NMP is good in concept, but proof of it lies in how it will be executed.

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