Govt has launched a four-year National Monetisation Pipeline(NMP) worth Rs 6lakh crore.NMP aims to mobilize resources for financing infrastructure.
What is NMP?
In asset monetisation government plans to transfer some of its assets like the roads, coal mines, etc. to the private players in exchange for a lump sum amount for a fixed period. At the end of that period, the private players have to return the asset to the government.
Let’s say a person has a property(land, house, tractor, etc.) But due to his busy schedule or lack of expertise or manpower, he can’t take proper care of the property or use it to its fullest. Now there is always another person who will have a need for the property and can use it to its fullest. Now the first person can do two things, either he can sell his property or he can lease out his property for a lumpsum amount. Let’s say the first person leases out the property The other person will use the property to make a profit out of it( he might again rent it out to someone else or use it in his production process). The amount of money he makes out of the property and the lump sump he had to give it to you would be his profit. This is what happens in asset monetisation. In this case, the person who transfers the property is the govt and the person renting it out will be any private company.
Why Asset Monetisation?
Many of the assets of the government like roads, rail, empty pieces of land has not been adequately utilized because of financial constraints, lack of expertise, or adequate manpower. This asset if were properly utilized would have brought financial benefit to the nation. Also, the government needs resources to develop the infrastructure of the country. But due to scarcity of funds the govt’s infrastructure development has been lagging behind. Due to this, the central govt has devised the NMP to transfer the assets to the private sector for a lumpsum amount of money for a fixed amount of time. By investing in the assets the private players can better utilize the assets which would increase efficiency and productivity. This would also increase the cash flow from the asset. This would benefit both the private player and the govt.
The govt has also suggested that it can take the help of the Infrastructure Investment Trust Fund(INVIT) to finance its infrastructure projects. INVITs are like mutual funds where the monetised assets will be transferred. The investors then can subscribe to units. The govt will get funds in the process and the subscribers will get dividends.
However, there are certain issues that need to be addressed:
- Monetisation of underutilised asset will reap greater benefit to the whole economy but the private players will prefer well utilised assets rather than underutlised assets.In that case the main aim of moentisation might get diluted.
- It would be very difficult to properly get the valuation right over a longer horizon time.Lets say the govt has leased the toll booth to the private sector for some amount.If after some year the growth of traffic turns out to be higher than what govt has asssed than it would incurr loss ot the govt and windfall gain for the private players.
- The private players might increase toll price to recover the amount that they have goven to the govt.This will put additional burden on the people and might also increase price of essential goods.
All these issues need to be properly addressed for the NMP to be a success