Editorial

Unlocking value

| Updated on August 24, 2021

The asset monetisation plan holds out promise for prospective investors, but details are awaited

The ₹6-lakh crore plan to monetise existing public assets over the next four years has come not a moment too late. While being a pragmatic financial plan, it also underscores the reforms intent of the government. The catch, as always, will be in the implementation. Asset monetisation allows the government to raise resources and step up capital expenditure without increasing taxes or selling assets outright. If raising taxes is generally undesirable, disinvestment often gives rise to political headaches. In contrast, asset monetisation can meet rising capex needs of a fiscally stressed economy with less fuss — if it is planned well. The ownership of assets, including land, remains with the government, while their operations are leased out through a bidding process. The Centre plans to raise ₹88,000 crore this year through this route. Given the prevailing fiscal constraints (a fiscal deficit of 6.8 per cent of GDP slated for 2021-22) — which includes a disinvestment target of ₹1.75-lakh crore that is more likely to be missed than met — asset monetisation can help bridge the funds gap. As for the reforms push, it is borne out by the Centre incentivising States to sell stake in its public sector units or monetise them. The Centre will provide a matching sum to States for the amount they raise through disinvestment, a third of the sum monetised or half the sum realised through listing of a public sector entity. Pension funds, private equities, insurance funds and other investors keen on India’s potential, are likely to take notice.

However, raising ₹88,000 crore this year looks rather difficult in view of the work that lies ahead. A PPP ‘concession agreement’ needs to be prepared for all sectors that fall under the purview of this plan — not just roads, which is the only sector with such a framework in place, but also railways, power, telecom, coal mining, natural gas and shipping. The agreement framework, which is meant to arrive at asset valuations and risk-and-return sharing on the basis of the present value of future cash flows, will inevitably differ from sector to sector. The ministries concerned will have to get down to the task. Only then can entities or financial investors invest through the ToT (toll-operate-transfer) or Infrastructure Investment Trusts (InviTs) route. Meanwhile, the Budget this year has transferred road and power assets valued at ₹5,000 crore and ₹7,000 crore, respectively, to InviTs in order to attract private players.

Force majeure clauses as well as responsibility for employees should be clearly spelt out in these PPP frameworks. The lessons from earlier PPP failures should be learnt. The National Infrastructure Pipeline projects, for which over ₹100-lakh crore is meant to be invested by FY25, needs to be funded through a variety of vehicles — of which asset monetisation accounts for just 6 per cent. The deepening of bond markets is a prerequisite to enable higher corporate participation. Infrastructure spending needs to be funded in innovative ways, given resource constraints.

Published on August 24, 2021

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