NMP — Unlocking the hidden fortune

K Srinivasa Rao | Updated on September 19, 2021

Harnessing existing assets   -  istock.com

Exploiting the business potential of existing government assets will be a win-win for private entities

The National Monetisation Pipeline (NMP) was unveiled in this year’s Budget, which was later designed by the NITI Aayog. The policy envisages the Centre entering into a structured contractual partnership with private sector to unlock an estimated ₹6 lakh crore of wealth that can be ploughed back into the economy in the next four years.

The NMP will be coterminus with the balance period of four years of National Infrastructure Pipeline (NIP) – 2020-25. The NMP will be a roadmap for the asset monetisation of various brownfield infrastructure assets. It paves a way for leasing out various state-owned infrastructure.

Under NMP, the unused part of the government asset (building, land, property) will be leased out on a long term basis to private entities to start commercial activity. The long-term lease charges under structured contracts will be securitised and funds will flow to government. These funds will be reinvested for creating new infrastructure or for capital expenditure. This also expected to create new jobs.

This is a win-win proposition to the lessor (the government department) that lets the use of the property and lessee (the entrepreneurs) who gets temporary right to use the property for a lawful business. The entrepreneurs using these existing facilities will have clear advantage as a brownfield investment strategy. The government owns large network of properties with excess space, which are often not in productive use. But maintaining such unused properties add to the government’s expenses. Thus the NMP enables the turning of idle assets’ into productive commercial activity.

The costs and time of starting new economic activities by the lessee will be reduced as the assets have already been created and can be readily used with slight modifications. They will also be free from the hassles of obtaining clearances and permissions for construction/occupation of the buildings/spaces.

The government in turn gets quick cash flows by securitising the future rent receivables. Such lease rental funds will be unlocked without selling the property. There is no change as far as the ownership is concerned and the lessee will maintain the property better and will get it modified to suit his intended activity.

A well laid out pipeline hence gives an opportunity to investors and developers of brownfield investment in infrastructure. The NMP will also form a baseline for the asset owning ministries for monitoring and tracking performance of the potential assets.

The target groups

The NITI Aayog has made an assessment of the total asset base available and worked out the detailed plan of NMP. It targeted 13 sectors to realise the target of ₹6 lakh crore in the next four years.

The infrastructure identified for monetisation includes Railways, airports, ports, roads, shipping, telecom, warehousing, realty, hotels, sports stadiums, power transmission, and gas pipeline. The National Highway authority (NHAI) will unlock ₹1.6 lakh crore while Railways can obtain ₹1.52 lakh crore.

For NMP to succeed, the regulatory aspects will have to tweaked. The Financial Stability and Development Council (FSDC) will soon be working out a roadmap with the financial sector regulators for balancing risks and return on newer opportunities created through the NMP.

The FSDC will corodinate with RBI, SEBI, IRDAI and PFRDA, to ensure that the potential investors are able to take appropriate well-measured risks but at the same time ensure realisation of NMP’s goals. At the same time, government has formed an apex monitoring committee to oversee the progress of NMP to ensure that the benefit of it is ultimately realised well within the timelines.

A multi-layer institutional mechanism with suitable dashboards for overall implementation and monitoring of the asset monetisation programme has been institutionalised.

NMP creates an opportunity for budding entrepreneurs to build a business ecosystem in the existing government owned facilities. Examples could be building an institute of higher education in the precincts of state-owned enterprise by sharing the building/freehold space.

Hiring space in a Railway office/railway station building to start private enterprise will be now possible.

NMP is an innovative way to look beyond banks and capital markets for funding infrastructure development. It will ease access and encourage investments.

More than the flow of funds, it will create an opportunity to boost economic activities to fuel growth and employment. It is up to the business community to tap the opportunities provided by NMP to share resources and create a new wave of momentum to move towards a $5-trillion economy.

The author is Adjunct Professor, Institute of Insurance and Risk Management –IIRM, Hyderabad. The views are his own

Published on September 19, 2021

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